The CFPB rescinded an advisory opinion that had described how one particular type of “earned wage” product did not involve the offering or extension of “credit” as that term is defined in the Truth in Lending Act and Regulation Z as Rohit Chopra’s term as director was coming to an end.
That action was apparently taken because the CFPB lacked sufficient time to finalize a new interpretive rule covering earned wage access products prior to the appointment of a new acting director, since the CFPB’s proposed interpretive rule on earned wage products had criticized the advisory opinion and indicated that it would be replaced.
The original advisory opinion said that an “earned wage product is not TILA or Regulation Z credit if it meets all of several identified conditions, including: providing the consumer with no more than the amount of accrued wages earned; provision by a third party fully integrated with the employer; no consumer payment, voluntary or otherwise, beyond recovery of paid amounts via a payroll deduction from the next paycheck, and no other recourse or collection activity of any kind; and no underwriting or credit reporting.”
The 2020 opinion did not address whether earned wage access products that do not meet all of these conditions are credit under TILA and Regulation Z.
The CFPB said it was rescinding the 2020 advisory opinion because it contained a “significantly flawed” legal analysis and because it caused “substantial regulatory uncertainty.”
Discussing the legal flaws, the CFPB said the opinion’s consideration of the meaning of “debt” under state law was insufficient. In addition, the advisory opinion inferred that a consumer does not incur a liability when using the limited type of earned wage product covered by the opinion, but did not justify that inference. The 2020 advisory opinion also did not consider all relevant factors as part of the “totality of the circumstances” approach it applied to determine what is “credit.”
In addition, in the months and years following the issuance of the 2020 advisory opinion, the CFPB said, it became “increasingly evident” that it failed to clarify the status of earned wage products under TILA and Regulation Z.
“This muddying of the waters flowed directly from the extreme narrowness of the opinion,” the CFPB said. “Few if any of the products in the market at the time of or subsequent to issuance fit the mold outlined by the opinion. As a result, stakeholders were left to speculate about the CFPB’s view about the credit status of the many products actually being offered.”