Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work, 61358-61363 [2024-16827]
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Proposed Rules
Federal Register
Vol. 89, No. 147
Wednesday, July 31, 2024
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
CONSUMER FINANCIAL PROTECTION
BUREAU
12 CFR Part 1026
[Docket No. CFPB–2024–0032]
Truth in Lending (Regulation Z);
Consumer Credit Offered to Borrowers
in Advance of Expected Receipt of
Compensation for Work
Consumer Financial Protection
Bureau.
ACTION: Notice of proposed interpretive
rule; request for comment.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB) is charged
with promoting competition and
innovation in consumer financial
products and services. After careful
study of emerging offerings in the
paycheck advance marketplace,
including those marketed as ‘‘earned
wage advances’’ and ‘‘earned wage
access,’’ the CFPB is proposing this
interpretive rule to help market
participants determine when certain
existing requirements under Federal law
are triggered. The proposed interpretive
rule would also address certain costs
that are in substantial connection with
extensions of such credit, such as
expedited delivery fees and costs
marketed as ‘‘tips.’’
DATES: Comments must be received by
August 30, 2024.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2024–
0032, by any of the following methods:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2024-Paycheck-AdvanceInterpretive-Rule@cfpb.gov. Include
Docket No. CFPB–2024–0032 in the
subject line of the message.
• Mail/Hand Delivery/Courier:
Comment Intake—2024 Paycheck
Advance Interpretive Rule, c/o Legal
Division Docket Manager, Consumer
Financial Protection Bureau, 1700 G
Street NW, Washington, DC 20552.
Because paper mail in the Washington,
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SUMMARY:
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DC area and at the CFPB is subject to
delay, commenters are encouraged to
submit comments electronically.
Instructions: The CFPB encourages
the early submission of comments. All
submissions must include the document
title and docket number. In general, all
comments received will be posted
without change to https://
www.regulations.gov. All submissions,
including attachments and other
supporting materials, will become part
of the public record and subject to
public disclosure. Proprietary
information or sensitive personal
information, such as account numbers
or Social Security numbers, or names of
other individuals, should not be
included. Submissions will not be
edited to remove any identifying or
contact information.
FOR FURTHER INFORMATION CONTACT:
George Karithanom, Regulatory
Implementation & Guidance Program
Analyst, Office of Regulations, at 202–
435–7700 or at: https://reginquiries.
consumerfinance.gov/. If you require
this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Background
One major source of demand for
consumer credit is derived from the
mismatch of when American workers
receive compensation for their labor and
when they incur expenses. While there
have long been sources of credit for
consumers to pay expenses in advance
of receiving their compensation, there
are a number of new offerings that seek
to provide additional choices for
consumers.
Instead of being paid daily or upfront,
American workers generally provide
services before employers pay for those
services some time later—typically on a
biweekly or semi-monthly wage cycle.1
Employers have a strong incentive to
delay payment, since these delays
reduce working capital needs. Nearly
three-quarters of non-farm payroll
employees remain paid biweekly or
even less frequently, and the remainder
are generally paid their wages weekly.
To address liquidity challenges, many
consumers therefore turn to third-party
1 While the terms ‘‘employer’’ and ‘‘employee’’
are used throughout, the proposed interpretive rule
would apply more broadly to situations where
consumers receive payment for work performed.
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credit products, such as payday loans,
personal installment loans, and credit
cards. In recent years, American
consumers have significantly expanded
their use of products sometimes
marketed as ‘‘earned wage access’’ or
‘‘earned wage advance.’’ 2 As these
paycheck advance products generally
have features that make them subject to
the CFPB’s jurisdiction, the CFPB has
sought to understand these and other
products, particularly those offered
online, by engaging in ongoing
monitoring of the market, including, for
example, collecting and analyzing data,
engaging with stakeholders (e.g., market
participants, consumer groups, and
States), tracking and studying market
developments, and conducting market
research, among other things.
While many of these products have
similarities to payday loans, there are
important distinctions. The CFPB has
found that there are two emerging
models of earned wage products:
employer-partnered and direct-toconsumer.
For ‘‘employer-partnered’’ products,
providers contract with employers to
offer funds in amounts not exceeding
accrued wages. Those funds are
recovered via one or more payroll
deductions, lowering the consumer’s
paychecks accordingly, with other
recourse options generally unavailable
to the third-party provider. In contrast,
‘‘direct-to-consumer’’ products provide
funds to employees in amounts that
they estimate to be below accrued
wages; funds are then recovered via
automated withdrawal from the
consumer’s bank account,3 and
generally without limit to the provider’s
ability to seek further recourse as
necessary.4
Some of the significant differences
between these two types of earned wage
products, however, are starting to erode.
2 A CFPB report describes rapid recent growth in
one part of this developing market. See CFPB,
Developments in the Paycheck Advance Market, at
3 (July 2024) (hereinafter 2024 Paycheck Advance
Report).
3 This includes, without limitation, e.g., prepaid
and payroll card accounts.
4 As described, direct-to-consumer products lie
outside the scope of the ‘‘wage advance’’ (12 CFR
1041.3(d)(7)) and ‘‘no cost advance’’ (12 CFR
1041.3(d)(8)) exclusions from the CFPB’s 2017
Payday Rule. Employer-partnered products,
however, may be (but are not necessarily) within
the scope of one exclusion or both, with their
revenue model particularly relevant to that
determination. See 12 CFR 1041.3(d)(7)(ii)(A),
(d)(8).
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For example, some direct-to-consumer
providers are now connecting directly to
payroll records and recouping funds
from payroll deductions, and ongoing
State legal developments may cause
them to limit their recourse options as
well.5
Before the CFPB’s market monitoring
of these products intensified, the CFPB
issued an advisory opinion in November
2020,6 that described how one
particular type of earned wage product
does not involve the offering or
extension of ‘‘credit’’ as that term is
defined in Regulation Z (12 CFR part
1026) and the Truth in Lending Act
(TILA).7 The opinion explained 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 advisory opinion was silent
about whether earned wage products
that do not meet all of these conditions
are credit under TILA and Regulation
Z.8 The opinion did not address what
counts under TILA and Regulation Z as
a finance charge with respect to any
such product that is credit. As the CFPB
has acknowledged, the 2020 advisory
opinion appears to have caused
significant regulatory uncertainty.9
5 See 2024 Paycheck Advance Report, supra note
2, at 4 n.7. Several recently enacted State laws
prohibit providers of earned wage products,
including direct-to-consumer products, from
compelling consumer repayment of earned wage
amounts and fees through various means, such as
lawsuits or third-party debt collection. See, e.g., 24
Mo. Rev. Stat. sec. 361.749(5)(6); Wis. Stat. sec.
203.04(2)(f); cf. Montana Op. Att’y Gen., Vol. 59,
Op. 2 (Dec. 22, 2023) (finding earned wage products
do not meet the state law definitions of ‘‘consumer
loan’’ or ‘‘deferred deposit loan’’ when they are
‘‘fully non-recourse,’’ among other criteria).
6 CFPB, Truth in Lending (Regulation Z); Earned
Wage Access Programs (Nov. 2020), https://files.
consumerfinance.gov/f/documents/cfpb_advisoryopinion_earned-wage-access_2020-11.pdf
(hereinafter 2020 Advisory Opinion).
7 Regulation Z defines credit at § 1026.2(a)(14).
8 The opinion stated that it had no application to
such products. See 2020 Advisory Opinion, supra
note 6, at 3–7.
9 See, e.g., Nat’l Consumer L. Ctr., Ctr. for
Responsible Lending, Concern About Prior
Leadership’s Finding that Certain Earned Wage
Access Products Are Not ‘‘Credit’’ Under TILA,
Nat’l Consumer L. Ctr., Ctr. for Responsible
Lending, at 36–37 (Oct. 12, 2021), https://
www.responsiblelending.org/sites/default/files/
nodes/files/research-publication/crl-nclc-ewa-letterto-cfpb-oct2021.pdf (noting ‘‘chaos’’ and ‘‘further
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The CFPB is taking a number of steps
to spur greater competition in markets
for consumer financial products,
including to address the credit needs of
households who incur costs due to a
mismatch in the timing of their income
and expenses. In addition, some market
participants and investors seek to better
understand the applicability of existing
federal law in these emerging business
models. To provide greater clarity, the
CFPB is proposing to replace the 2020
advisory opinion with a new
interpretive rule. In light of the
uncertainty caused by the 2020 advisory
opinion as noted above and the fact that
the CFPB is proposing to overturn and
replace that opinion, the CFPB is opting
to publish this proposed interpretive
rule to solicit public comment. The
proposed interpretive rule is informed
by the CFPB’s extensive study of this
market, including data collection,
continuous monitoring, investigation,
coordination with states, and
engagement with market participants.
The CFPB is seeking comment on any
aspect of this this proposed interpretive
rule. The CFPB intends to publish a
final interpretive rule after considering
comments received.
questions’’ caused by advisory opinions); U.S. Gov’t
Accountability Off., GAO–23–105536, Financial
Technology: Products Have Benefits and Risks to
Underserved Consumers, and Regulatory Clarity is
Needed, at 36–37 (Mar. 2023), https://www.gao.gov/
assets/gao-23-105536.pdf (citing industry requests
for clarification). The CFPB has acknowledged the
need for clarification in this area. See, e.g., Letter
from CFPB Director Rohit Chopra (Feb. 13, 2023) in
U.S. Gov’t Accountability Off., supra, at 51; Letter
from CFPB Acting General Counsel to N.J. Citizen
Action, et al., at 2 (Jan. 18, 2022).
Problematically, the 2020 advisory opinion has
been widely cited in support of legal conclusions
that it did not reach. For example, it has
erroneously been cited for the general propositions
that no-fee earned wage products are not credit, see,
e.g., Ariz. Op. Att’y Gen. No. I22–005 (Dec. 16,
2022), https://www.azag.gov/sites/default/files/
2022-12/I22-005.pdf, and that employer-partnered
earned wage products are also not credit, see, e.g.,
ZayZoon, Comment Letter on Cal. Dep’t of Fin. Prot.
& Innovation re: Notice of Proposed Rulemaking
[PRO 01–21], at 4 (May 17, 2023), https://dfpi.
ca.gov/wp-content/uploads/sites/337/2023/08/46PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf;
Innovative Payments Ass’n, Comment Letter on Cal.
Dep’t of Fin. Prot. & Innovation re: Notice of
Proposed Rulemaking [PRO 01–21], at 4 (May 11,
2023), https://dfpi.ca.gov/wp-content/uploads/sites/
337/2023/08/10-PRO-01-21-Innovative-PaymentsAssociation-5.11.23_Redacted.pdf. Some regulatory
uncertainty may have resulted from the nearcontemporaneous issuance of a ‘‘Sandbox Approval
Order’’ that gave one provider a temporary safe
harbor from liability under TILA and Regulation Z
with respect to a specific product that did not
satisfy all the conditions that the 2020 advisory
opinion identified as taking such a product outside
the reach of TILA and Regulation Z. See CFPB,
Payactiv Approval Order, at 5 (Dec. 30, 2020),
https://files.consumerfinance.gov/f/documents/
cfpb_payactiv_approval-order_2020-12.pdf. The
2020 advisory opinion applied only to products that
had all of a number of characteristics, including
that they were free to consumers. In contrast, the
approval order encompassed earned wage
transactions in connection with which the
consumer incurred fees. See id. The approval order
was issued under a CFPB policy that is no longer
in effect. See generally CFPB, Statement on
Competition and Innovation (Sept. 30, 2022),
https://files.consumerfinance.gov/f/documents/
cfpb_statement-on-competition-innovation_202209.pdf. However, that approval order was never of
general interpretative applicability, see Payactiv
Approval Order, supra, at 4 n.15, and was
terminated even before its temporary status expired,
CFPB, CFPB Rescinds Special Regulatory Treatment
for Payactiv (June 30, 2022), https://www.consumer
finance.gov/about-us/newsroom/cfpb-rescindsspecial-regulatory-treatment-for-payactiv/.
1. Earned Wage Products
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II. Proposed Interpretive Rule
The text of the proposed interpretive
rule is as follows.
A. Coverage
This interpretive rule applies to
products that involve both: (1) the
provision of funds to the consumer in
an amount that is based, by estimate or
otherwise, on the wages that the
consumer has accrued in a given pay
cycle; and (2) repayment to the thirdparty provider via some automatic
means, like a scheduled payroll
deduction or a preauthorized account
debit,10 at or after the end of the pay
cycle. Many payday loans would also
meet this definition where the lender or
State law restricts the amount of the
loan based on accrued wages.11
2. Other Products and Other Laws
This interpretive rule only addresses
the application of certain Regulation Z
and TILA provisions; it does not address
the application of any other laws that
concern ‘‘credit.’’ Because the rule
explains the applicability of Regulation
Z, the rule may be useful to designers
and creators of other financial products,
including those relying on ‘‘tips’’ and
other related payment mechanisms.
B. Legal Analysis
1. The Truth in Lending Act and
Regulation Z Cover Products Where
There Is an Obligation to Repay Debt
Section 1026.2(a)(14) of Regulation Z
defines ‘‘credit’’ as ‘‘the right to defer
payment of debt or to incur debt and
defer its payment.’’ 12 TILA defines
‘‘credit’’ virtually identically as ‘‘the
right granted by a creditor to a debtor to
defer payment of debt or to incur debt
10 This includes repayment via ACH, check, or
any other preauthorized repayment.
11 This interpretive rule does not apply to an
employer’s actual payment of wages. Note that
while the terms ‘‘employer’’ and ‘‘employee’’ are
used throughout, this interpretive rule applies more
broadly to situations where consumers receive
payment for work performed.
12 12 CFR 1026.2(a)(14).
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and defer its payment.’’ 13 As described
further below, earned wage products are
consumer credit for purposes of TILA
and Regulation Z.
TILA and Regulation Z do not define
‘‘debt.’’ Used infrequently in the statute
and the regulation, ‘‘debt’’ for the most
part only appears in the definition of
‘‘credit.’’ The term ‘‘debt’’ in ordinary
usage means simply ‘‘something owed,’’
without any obvious limitation.14 Legal
dictionaries, including those dating to
the enactment of TILA,15 similarly
describe debt as a ‘‘sum of money due
by certain and express agreement’’ or ‘‘a
financial liability or obligation owed by
one person, the debtor, to another, the
creditor.’’ 16 If Congress had intended to
substantially narrow the types of
transactions that could constitute
‘‘debt,’’ it could have done so by
defining the term in TILA.17 In light of
this precedent, and the context in which
the term ‘‘debt’’ appears in TILA, ‘‘debt’’
in TILA and Regulation Z includes any
obligation by a consumer to pay another
party.
This commonsense understanding of
debt is reflected in State laws 18 defining
the term, which also tend to use very
broad language to describe debt to mean
an obligation by the consumer to pay.19
13 15
U.S.C. 1602(f).
Merriam-Webster, https://www.merriamwebster.com/dictionary/debt (last updated Jan. 30,
2024).
15 See New Prime Inc. v. Oliveira, 586 U.S. 105,
113 (2019) (‘‘It’s a fundamental canon of statutory
construction that words generally should be
interpreted as taking their ordinary meaning at the
time Congress enacted the statute.’’) (cleaned up).
16 Debt, Black’s Law Dictionary (4th ed. 1968)
(defining debt as ‘‘[a] sum of money due by certain
and express agreement; as by bond for a
determinate sum, a bill or note, a special bargain,
or a rent reserved on a lease, where the amount is
fixed and specific, and does not depend upon any
subsequent valuation to settle it.’’); Debt, Wex,
https://www.law.cornell.edu/wex/debt (last updated
Sept. 2021).
17 As the Court observed in Whitman v. Am.
Trucking Ass’ns, ‘‘Congress, we have held, does not
alter the fundamental details of a regulatory scheme
in vague terms or ancillary provisions—it does not,
one might say, hide elephants in mouseholes.’’ 531
U.S. 457, 468 (2001).
18 See 12 CFR 1026.2(b)(3) (providing interpretive
guidance with respect to undefined terms). As the
Board of Governors of the Federal Reserve System
noted when it first proposed § 1026.2(b)(3), the
provision and its fellow rules of construction ‘‘are
intended to assist in understanding the regulatory
language.’’ 45 FR 29702, 29705 (May 5, 1980).
19 See, e.g., Cal. Civ. Code sec. 1788.2(d) (‘‘The
term ‘debt’ means money, property, or the
equivalent that is due or owing or alleged to be due
or owing from a natural person to another person.’’);
Colo. Rev. Stat. Ann. sec. 5–16–103(8)(a) (‘‘ ‘Debt’
means any obligation or alleged obligation of a
consumer to pay money arising out of a transaction,
whether or not the obligation has been reduced to
judgment.’’); D.C. Code Ann. sec. 28–3814(b)(2)
(‘‘ ‘Consumer debt’ means money or its equivalent,
or a loan or advance of money, which is, or is
alleged to be, more than 30 days past due and
owing, unless a different period is agreed to by the
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Bankruptcy law also uses a broad
definition—‘‘liability on a claim,’’
where a ‘‘claim’’ is ‘‘the right to
payment, whether or not such right is
reduced to judgment, liquidated,
unliquidated, fixed, contingent,
matured, unmatured, disputed,
consumer, as a result of a purchase, lease, or loan
of goods, services, or real or personal property for
personal, family, medical, or household
purposes.’’); Fla. Stat. Ann. sec. 559.55(6) (‘‘ ‘Debt’
or ‘consumer debt’ means any obligation or alleged
obligation of a consumer to pay money arising out
of a transaction in which the money, property,
insurance, or services which are the subject of the
transaction are primarily for personal, family, or
household purposes, whether or not such obligation
has been reduced to judgment.’’); Haw. Rev. Stat.
Ann. sec. 480D–2 (‘‘ ‘Debt’ means any obligation or
alleged obligation of a person to pay money arising
out of any transaction, whether or not the obligation
has been reduced to judgment.’’); Me. Rev. Stat. tit.
32, sec. 11002(5) (‘‘ ‘Debt’ means any obligation or
alleged obligation of a consumer to pay money
arising out of a transaction in which the money,
property, insurance or services that are the subject
of the transaction are primarily for personal, family
or household purposes, whether or not the
obligation has been reduced to judgment.’’); N.H.
Rev. Stat. Ann. sec. 358–C:1(VI) (‘‘ ‘Debt’ means any
obligation or alleged obligation arising out of a
consumer transaction.’’); N.M. Stat. Ann. sec. 61–
18A–2(F) (‘‘ ‘[D]ebt’ means an obligation or alleged
obligation of a debtor to pay money arising out of
a transaction in which the money, property,
insurance or services that are the subject of the
transaction are primarily for personal, family or
household purposes, whether or not such obligation
has been reduced to judgment.’’); N.Y. Gen. Bus.
Law sec. 600(6) (‘‘ ‘Debt’ means any obligation or
alleged obligation of a consumer to pay money
arising out of a transaction in which the money,
property, insurance, or services which are the
subject of the transaction are primarily for personal,
family, or household purposes, whether or not such
obligation has been reduced to judgment.’’); N.D.
Cent. Code Ann. sec. 13–05–01.1(6) (‘‘ ‘Debt’ means
an obligation or alleged obligation to pay money
arising out of a transaction, regardless of whether
the obligation has been reduced to a judgment.’’);
Or. Rev. Stat. Ann. sec. 646.639(f) (‘‘ ‘Debt’ means
an obligation or alleged obligation that arises out of
a consumer transaction.’’); 19 R.I. Gen. Laws Ann.
sec. 19–14.9–3(4) (‘‘ ‘Debt’ means any obligation or
alleged obligation of a consumer to pay money
arising out of a transaction in which the money,
property, insurance, or services that are the subject
of the transaction are primarily for personal, family,
or household purposes, whether or not the
obligation has been reduced to judgment.’’); Tex.
Fin. Code Ann. sec. 392.001(2) (‘‘ ‘Consumer debt’
means an obligation, or an alleged obligation,
primarily for personal, family, or household
purposes and arising from a transaction or alleged
transaction.’’); Utah Code Ann. sec. 12–1–11(1)(b)
(‘‘ ‘Debt’ means an obligation or alleged obligation
to pay money arising out of a transaction for money,
property, insurance, or services.’’); Wash. Rev. Code
Ann. sec. 6.01.060(2) (‘‘ ‘Consumer debt’ means any
obligation or alleged obligation of a consumer to
pay money arising out of a transaction in which the
money, property, insurance, or services which are
the subject of the transaction are primarily for
personal, family, or household purposes.’’); Wyo.
Stat. Ann. sec. 33–11–101(a)(vii) (‘‘ ‘Debt’ means
any obligation or alleged obligation of a consumer
to pay money arising out of a transaction in which
the money, property, insurance or services which
are the subject of the transaction are primarily for
personal, family or household purposes, whether or
not the obligation has been reduced to judgment.’’).
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undisputed, legal, equitable, secured, or
unsecured.’’ 20
The only enumerated consumer
financial law identified in the Consumer
Financial Protection Act 21 that defines
‘‘debt,’’ the Fair Debt Collection
Practices Act (FDCPA), broadly states
that debt encompasses ‘‘any obligation
or alleged obligation of a consumer to
pay money arising out of a transaction
in which the money, property,
insurance, or services which are the
subject of the transaction are primarily
for personal, family, or household
purposes, whether or not such
obligation has been reduced to
judgment.’’ 22 The main limiting feature
in the definition of ‘‘debt’’ in the FDCPA
is that it is limited to transactions for
personal, family, or household
purposes, a limitation already imposed
elsewhere in TILA.23 The FDCPA
definition, therefore, also supports a
broad reading of ‘‘debt’’ under TILA and
Regulation Z in this context, consistent
with ordinary usage that includes all
obligations to pay another.
In an earned wage transaction, the
consumer incurs an obligation to pay
money at a future date. For some earned
wage products, the specific amount of
money that the consumer is obligated to
pay at a future date has an element of
contingency; for example, the obligation
may be limited by whether funds
available from the next payroll event (or
events) are sufficient to cover the
amount of earned wage funds the
consumer received. But that is still an
obligation to pay money at a future date.
TILA has long been understood to cover
contingent obligations.24
20 11 U.S.C. 101(5)(A), (12). Bankruptcy law
defines ‘‘consumer debt’’ as ‘‘debt incurred by an
individual primarily for a personal, family, or
household purpose.’’ 11 U.S.C. 101(8).
21 12 U.S.C. 5481(12).
22 15 U.S.C. 1692a(5); see also 12 CFR 1006.2(h);
Pollice v. Nat’l Tax Funding, 225 F.3d 379, 410 (3d
Cir. 2000) (‘‘Although [TILA] does not contain a
definition of the term ‘debt,’ we believe the term as
used in [TILA] should be construed as it is defined
in the FDCPA.’’). Like TILA, the Consumer
Financial Protection Act and Equal Credit
Opportunity Act, for example, use the term ‘‘debt’’
in their definitions of ‘‘credit’’ without defining it.
See 12 U.S.C. 5481(7); 15 U.S.C. 1691a(d).
23 15 U.S.C. 1602(g), (i).
24 See, e.g., Madewell v. Marietta Dodge, Inc., 506
F. Supp. 286 (N.D. Ga. 1980) (retail installment
contract for purchase of automobile subject to TILA
even though contingent on seller’s ability to arrange
financing); Bailey v. Comm’r of Internal Revenue,
993 F.2d 288, 292 (2d Cir. 1993) (discussing
‘‘[n]onrecourse debt’’); 12 CFR 1026.33(a) (reverse
mortgages—where repayment is contingent on
future home value at the time of a termination
event, such as the death of the borrower—subject
to TILA as credit); cf. Small Business Lending
Under the Equal Credit Opportunity Act
(Regulation B), 88 FR 35150, 35163 (May 31, 2023)
(explaining that merchant cash advances—under
which a provider offers a merchant a lump sum in
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Earned wage products provide
consumers with ‘‘the right to defer
payment of debt or to incur debt and
defer its payment’’ because they incur a
‘‘debt’’ when they obtain money with an
obligation to repay via an authorization
to debit a bank account or using one or
more payroll deductions.25 It does not
matter that the obligation to repay is
sometimes satisfied via payroll
deduction.26 It is still an act of
repayment. In contrast, when an
employer pays wages, no later act of
repayment is required, by deduction or
otherwise.
This interpretive rule replaces the
advisory opinion the CFPB issued in
November 2020, which stated that some
earned wage products are not ‘‘credit’’
because they would not constitute a
‘‘debt.’’ 27 A primary justification for
this statement, based on a legal
dictionary definition of ‘‘debt’’ requiring
a ‘‘liability,’’ was that the narrow type
of earned wage products covered by that
opinion—which, among other
characteristics, were administered
through the employer and cost-free to
the consumer—were ‘‘effectively’’
providing earned wages to consumers
early and, therefore, were not debts. Per
the analysis above, the 2020 advisory
opinion—narrowly focused as it was on
one unique type of product—did not
consider the full scope of available
precedent and definitions in common
legal usage when reaching its narrow
exchange for a specific portion of the merchant’s
proceeds from future sales of goods and services—
are credit, notwithstanding that the repayment
obligation may be contingent on the merchant’s
future sales); Consent Order, In re Better Future
Forward, Inc., Admin. Proceeding No. 2021–CFPB–
005 (Sept. 7, 2021) (identifying as credit income
share agreements, which ‘‘finance postsecondary
education’’ whereby ‘‘[i]n exchange for money up
front, students agree that once their income exceeds
an income threshold, they will make payments
based on a percentage of their income until either:
(i) they meet a payment cap or (ii) a period of years
elapses.’’).
25 Earned wage products are offered or extended
to consumers primarily for personal, family, or
household purposes, so they also meet the
Regulation Z definition of ‘‘consumer credit.’’ 12
CFR 1026.2(a)(12).
26 It is not uncommon for credit providers to
compel repayment of debt using wage garnishment
automatically deducted from consumer paychecks.
Payday lenders are sometimes repaid through courtordered wage garnishment. See CFPB, Ask CFPB:
Can a Payday Lender Garnish My Bank Account or
My Wages? (last reviewed Sept. 23, 2022), https://
www.consumerfinance.gov/ask-cfpb/can-a-paydaylender-garnish-my-wages-en-1609/. Consumers may
pay some lenders directly by paycheck allotment.
Cf. 12 CFR part 1026, supplement I, comment
2(a)(14)–2 (‘‘Credit includes a transaction in which
a cash advance is made to a consumer . . . in
exchange for the consumer’s authorization to debit
the consumer’s deposit account, and where the
parties agree . . . that the consumer’s deposit
account will not be debited, until a designated
future date.’’).
27 See 2020 Advisory Opinion, supra note 6.
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conclusion.28 Many credit products are
used to gain liquidity in advance of
receipt of a paycheck and thus will have
some de facto resemblance to early
payment of wages, but that does not take
them outside the definition of credit.
Earned wage products, as distinct from
an employer’s actual payment of wages,
are no exception.29
Moreover, because the 2020 advisory
opinion only addressed one particular
type of product, its analysis does not
shed light on how TILA and Regulation
Z apply to new offerings on the market.
The 2020 advisory opinion found that
the products it addressed ‘‘functionally
operate[ ] like an employer that pays its
employees earlier than the scheduled
payday,’’ but earned wage products in
which, for example, consumers make a
payment in connection with receiving
funds do not leave consumers in the
same position that they would be if their
employer just paid them earlier. While
the 2020 advisory opinion emphasized
the absence of fees or charges to support
its conclusion that covered products
were different in kind from the credit
covered by TILA and Regulation Z,
except on a small number of employerspecific products, the vast majority of
earned wage transactions involve
consumer payment.30
28 The 2020 advisory opinion stated that there
would not be a ‘‘liability.’’ That word is not used
in all dictionary definitions of the term ‘‘debt,’’ and
regardless, the earned wage product did require
repayment.
29 The CFPB also noted that the 2020 advisory
opinion would be consistent with 12 CFR part 1026,
supplement I, comment 2(a)(14)–A31JY2.1.v. See
2020 Advisory Opinion, supra note 6, at 9.
However, that comment was promulgated as an
exclusion from the definition of ‘‘credit’’ after
notice and comment, which suggests that the
product would be subject to TILA and Regulation
Z but for the exclusion. Products similar to
products in the exclusion, but not covered by the
exclusion, should therefore be presumed to be
‘‘credit.’’
In the 2020 advisory opinion, the CFPB also
noted that its interpretation was consistent with
certain statements in the CFPB’s 2017 Payday
Lending Rule. However, the Payday Rule did not
make a determination as to whether earned wage
products are credit, stating only that some product
constructs ‘‘may not be.’’ The CFPB declined to
perform the more detailed analysis necessary to
come to a considered conclusion on the boundaries
of TILA and Regulation Z at that time because that
was not necessary for the rulemaking exercise. It is
performing that analysis now, in this interpretive
rule. Some earned wage products may not be
covered by the Payday Rule because of its ‘‘wage
advance’’ and ‘‘no cost advance’’ exclusions. See 12
CFR 1041.3(d)(7) and (8). However, these
exclusions can only apply to earned wage products
to the extent that such products are TILA and
Regulation Z credit. As a result, the CFPB’s earlier
decision to exclude certain earned wage product
constructs from the Payday Rule has no impact on
the credit status of such products under TILA or
Regulation Z.
30 See, e.g., 2024 Paycheck Advance Report, supra
note 2, at 11 (‘‘Without employer subsidization,
across both years in our [employer-partnered earned
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61361
2. Finance Charge Disclosures Include
Consumer Payments That Are Made
Incident to the Extension of Credit and
Imposed by the Creditor Directly or
Indirectly on the Consumer
a. General
In general, the obligations of
Regulation Z apply to any credit
provider that regularly offers or extends
consumer credit subject to a finance
charge.31 The finance charge is ‘‘the cost
of consumer credit as a dollar
amount.’’ 32 Unless specifically
excluded by the regulation, this
includes ‘‘any charge payable directly or
indirectly by the consumer and imposed
directly or indirectly by the creditor as
an incident to or a condition of the
extension of credit.’’ 33 If providers do
not disclose finance charges properly,
they violate Regulation Z.
Neither Regulation Z nor TILA further
explains the meaning of ‘‘incident to the
extension of credit.’’ The statute’s
history and context indicate that
Congress intended this term to be
interpreted expansively. When TILA
was enacted in 1968, Black’s Law
Dictionary defined ‘‘incident’’ to mean
‘‘anything which is usually connected
with another, or connected for some
purposes, though not inseparably.’’ 34
The phrase ‘‘incident to the extension of
credit’’ thus did not require that the
degree of connection be significant. The
Supreme Court, in a unanimous
decision by Justice Thomas, noted in the
context of TILA’s finance charge
wage] sample, around 90% of workers paid at least
one fee and approximately 82% of transactions
incurred a fee.’’); Cal. Dep’t of Fin. Prot. &
Innovation, 2021 Earned Wage Access Data
Findings, at 7 (2023), https://dfpi.ca.gov/wpcontent/uploads/sites/337/2023/03/2021-EarnedWage-Access-Data-Findings-Cited-in-ISOR.pdf (‘‘In
2021, for the 5,827,120 transactions completed by
tip-based companies, providers received tips 73%
of the time.’’). To the extent the interpretation
underlying the 2020 Payactiv approval order
articulated a different rationale regarding fees or
charges for earned wage transactions, the CFPB no
longer believes that interpretation is correct.
31 See 12 CFR 1026.1(c)(1)(iii). Note that finance
charges are not a necessary precondition for the
obligations of Regulation Z to apply to a provider
of Regulation Z credit. For example, the
requirements of Regulation Z will apply where the
provider regularly offers or extends consumer credit
that is payable by a written agreement in more than
four installments, even if the credit provided is not
subject to finance charges. See id. As another
example, certain Regulation Z requirements apply
when the offering or extension of consumer credit
involves a credit card, even if the credit is not
subject to a finance charge. See 12 CFR 1026.1(c)(2).
This interpretive rule does not state any view about
grounds on which an earned wage provider of
Regulation Z credit might be subject to Regulation
Z obligations other than due to their provision of
credit subject to a finance charge.
32 12 CFR 1026.4(a).
33 Id.
34 Incident, Black’s Law Dictionary (4th ed. 1968).
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provision that while ‘‘the phrase
‘incident to or in conjunction with’
implies some necessary connection
between the antecedent and its object
. . . the phrase ‘incident to’ does not
make clear whether a substantial (as
opposed to a remote) connection is
required.’’ 35 Thus, while a substantial
connection may not be the minimum
degree of connection required under
Regulation Z and TILA for a payment to
be part of the consumer’s cost of credit,
as an interpretive matter, any payment
exacted by the creditor that is
substantially connected must be part of
the finance charge.36
In addition, a payment may be
‘‘imposed directly or indirectly by the
creditor’’ and hence part of the finance
charge even if the credit can be obtained
without making such payment.
Regulation Z includes in the cost of
credit payments imposed by the creditor
that are ‘‘conditions of’’ the extension of
credit and that are ‘‘incident to’’ it.37 By
the same token, a creditor can ‘‘impose’’
a cost on a consumer—in the sense of
exacting it from them—‘‘directly or
indirectly’’ even if that payment is not
required for the extension of credit.38
The non-exhaustive list of finance
charges provided in Regulation Z
includes consumer payments that, even
when they are not a condition of the
extension of credit, are nonetheless
finance charges because the creditor
exacts them in connection with the
extension of credit.39
Two costs that consumers may incur
in connection with particular extensions
of earned wage credit are ‘‘tips’’ (and
other similarly labeled payments, like
‘‘gratuities’’) and expedited funds
delivery fees. When incurred, these
payments are substantially connected to
the extension of credit. Each happens
because of the associated extension of
credit, and the connection between each
type of payment and that extension is
close and clear. Thus, each is incident
to the extension of credit. Expedited
funds delivery fees are also ‘‘imposed
directly or indirectly by the creditor’’
and so should be included as part of the
‘‘cost of consumer credit as a dollar
amount.’’ Under certain circumstances,
discussed further below, ‘‘tips’’ and
similarly styled consumer payments
may similarly be ‘‘imposed directly or
indirectly by the creditor’’ such that
they are a part of the finance charge.
35 Household Credit Servs., Inc. v. Pfennig, 541
U.S. 232, 240–41 (2004). In Pfennig, the Supreme
Court held that an overlimit fee was not
unambiguously imposed as an incident to the
extension of credit because it could reasonably be
seen as a penalty for violation of the credit
agreement instead. See id. at 239–41. The Court
recognized that ‘‘regardless of how the fee is
characterized,’’ there was ‘‘at least some
connection’’ between the fee and credit extension,
but that was not enough to conclude that the fee
was necessarily imposed as an ‘‘incident to’’ credit
because the term ‘‘does not make clear whether a
substantial (as opposed to a remote) connection is
required.’’ Id. at 241.
36 This interpretive rule does not seek to establish
the degree of connection required beyond
interpreting ‘‘incident to’’ to cover charges that are
substantially connected to a particular extension of
credit.
37 TILA’s definition of finance charge only
references charges imposed ‘‘as an incident to the
extension of credit.’’ 15 U.S.C. 1605(a). The Board’s
implementing regulation then interprets the
statutory term ‘‘incident to’’ as encompassing—
while not being limited to—payments that are
conditions of the extension of credit. See 12 CFR
1026.4(a). This interpretation has been in
uninterrupted effect since the Board first adopted
TILA regulations on point.
38 TILA’s history and context indicate that
Congress intended the word ‘‘imposed’’ to be
interpreted broadly to encompass a variety of
charges the creditor might seek to have a consumer
pay in connection with the extension of credit. The
finance charge definition uses parallel language: the
charges are ‘‘payable directly or indirectly by’’ the
consumer, and ‘‘imposed directly or indirectly by’’
the creditor. The structure of the provision thus
uses ‘‘imposed’’ as a counterpoint to ‘‘payable,’’ so
as to identify the party doing the charging as
opposed to the party being charged. Similarly, the
1968 Black’s Law Dictionary definition of
‘‘impose’’—‘‘to levy or exact as by authority; to lay
as a burden, tax, duty, or charge’’—emphasizes the
deployment of power by the party doing the
b. Expedited Funds Delivery Fees
Speed of access to funds is an integral
and defining aspect of earned wage
products. They are designed to
address—and marketed as addressing—
the liquidity problem that arises
between the accrual of wages and their
actual payment. That problem
necessarily occurs in a very short
period,40 so the value of this type of
credit to the consumer includes the
rapid availability of funds. Thus, when
earned wage product providers offer two
speeds for delivering funds (which they
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imposing. Impose, Black’s Law Dictionary (4th ed.
1968). As the Board previously noted, ‘‘the term
‘imposed’ is understood broadly, to include any
cost charged by the creditor (unless otherwise
excluded).’’ 60 FR 66179, 66180 (Dec. 21, 1995). See
also, e.g., Impose, Merriam-Webster, https://
www.merriam-webster.com/dictionary/impose (last
updated Feb. 9, 2024) (defining ‘‘impose’’ with a
range of meanings, from ‘‘to establish or apply by
authority’’ to ‘‘to establish or bring about as if by
force’’ to simply ‘‘pass off’’ (emphasis added)).
39 See 12 CFR 1026.4(b); see also 61 FR 49237,
49239 (Sept. 19, 1996) (explaining that payments
for services that the creditor does not require can
still be finance charges when the payment is
‘‘imposed as an incident to that particular extension
of credit’’); cf. Incident, Black’s Law Dictionary
(11th ed. 2019) (defining ‘‘incident’’ as
‘‘[d]ependent upon, subordinate to, arising out of,
or otherwise connected with (something else, usu.
of greater importance)’’).
40 To obtain earned wage credit, consumers must
first accrue wages within a given pay period.
Repayment then occurs at or very shortly after the
conclusion of that same pay period. As a result, the
duration of any particular earned wage credit
extension has to be very brief.
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typically do), consumers predominantly
opt for the faster.41 That option typically
involves direct imposition of an
expedited delivery or ‘‘instant funds’’
fee that the creditor does not impose on
the slower form of credit.
Availability of a slower speed does
not control the cost of credit for the
faster form of credit. Though consumers
may not have to opt for faster funds,
when they do so, the resulting speed is
a feature of the credit extended, so the
resulting fee is part of the cost of credit.
As observed by the Board of Governors
of the Federal Reserve System, ‘‘even
though a lender may not require a
particular loan feature, the feature may
become a term of the credit if it is
included.’’ 42 The speed with which
earned wage credit provides liquidity to
the consumer is an integral feature of
such credit, which is why consumers
tend to opt for faster delivery when it
is available. Thus, when the consumer
pays for that faster delivery, the
associated fee is immediately and
directly connected to the particular
extension of credit. That substantial
connection makes this ‘‘a fee imposed as
an incident to that particular extension
of credit,’’ and accordingly one that
must be disclosed as part of the finance
charge.43
41 See 2024 Paycheck Advance Report, supra note
2, at 11. For the sample of employer-partnered
providers covered in the CFPB’s 2024 Report,
expedited delivery fees accounted for more than
96.6 percent of all consumer-paid fee revenue by
dollar value. See id. Public data also indicates that
earned wage advance providers relying on a tipping
revenue model obtain more than 25 percent of the
dollar value of consumer payments as expedited
delivery fees. See Cal. Dep’t of Fin. Prot. &
Innovation, supra note 30, at 6 n.11, 7.
42 61 FR 49237, 49239 (Sept. 19, 1996). The
expedite fee at issue here differs in kind from the
two types of expedite fees previously considered by
the Board of Governors of the Federal Reserve
System in the context of credit cards accessing
home equity lines of credit: a fee for expediting
delivery of the physical card, and a fee for
expediting a consumer’s payment. See 12 CFR part
1026, supplement I, comments 6(a)(2)–2(ix) and (x).
The Board determined that fees for those services
did not need to be included in account opening
disclosures as ‘‘other charges’’ or ‘‘finance charges.’’
See 68 FR 16185, 16186–87 (Apr. 3, 2003). Neither
of those services—faster possession of a physical
card or faster payments of amounts outstanding—
are as closely and integrally connected to the
extension of credit as faster funds access is to
obtaining an earned wage product.
43 Cf. 61 FR 49237, 49239 (Sept. 19, 1996) (noting
with respect to debt cancellation fees that
‘‘[a]lthough the same loan may be available without
that feature, with respect to a loan that has been
structured in this manner, the . . . fee is one that
has been imposed as an incident to that particular
extension of credit’’). Before this clarification from
the Board, the Eleventh and Seventh Circuits had
held that charges for optional services should not
be considered finance charges because the
consumer assumed their payment voluntarily. See
Veale v. Citibank, 85 F.3d 577, 579–81 (11th Cir.
1996); McGee v. Kerr-Hickman, 93 F.3d 380, 381–
86 (7th Cir. 1996). The CFPB sees no textual basis
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Regulation Z also covers expedited
delivery fees as finance charges because
such a fee is a ‘‘condition’’ of an
extension of credit. As noted above,
when an earned wage product provider
offers a slower and faster loan, and the
faster loan requires payment of an
expedited delivery fee, the expedited
delivery fee is a ‘‘condition’’ of the
extension of that type of credit.
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c. ‘‘Tips’’ and Similarly Labeled
Payments
In connection with the extension of
earned wage credit, some providers
solicit consumers for what they
variously describe as ‘‘tips,’’
‘‘gratuities,’’ ‘‘donations,’’ ‘‘voluntary
contributions,’’ or the like. The CFPB is
aware of a wide range of practices used
by credit providers to solicit these kinds
of payments from consumers, including:
default ‘‘tip’’ amounts that the consumer
must remove each time to avoid being
charged; suggesting particular ‘‘tip’’
amounts or percentages; suggesting or
stating that ‘‘tips’’ serve to ensure the
future supply of credit to the individual
or other users; and including multiple
prompts to ‘‘tip’’ throughout the process
of receiving credit.
Whatever the exact practice used,
when such ‘‘tip’’ payments are solicited
and then paid in connection with the
extension of credit, there is a clear and
close connection between the ‘‘tip’’ and
the associated extension of credit. In
such circumstances, consumers pay the
‘‘tip’’ for the credit extended, and the
credit is the direct and proximate cause
of the ‘‘tip.’’ 44 That substantial
connection between payment and
associated extension of credit means
that the payment is ‘‘incident to . . . the
extension of credit.’’ 45 Indeed, as a
practical matter, tips are a central source
of revenue for the earned wage product
providers that solicit them. For such
providers, public data shows that
consumers made ‘‘tip’’ payments in
connection with about 73 percent of all
such credit extensions, with such
payments representing roughly the same
share of consumer-side revenue for
these providers.46
in the regulation (or statute) to disagree with the
Board’s considered 1996 position on payment for
voluntary services. As the Board discerned, it does
not matter that it is possible to obtain credit without
the relevant service if the service is a feature of the
loan affecting the total price paid for the credit.
44 Such payments are not tips or gratuities in any
traditional sense. Consumers generally pay tips to
individual workers in the service industry, not to
firms (whether partnered with the employer or
otherwise) for lending them money. Providers
should exercise care in ensuring that the language
they use here is not deceptive.
45 See supra note 35.
46 See Cal. Dep’t of Fin. Prot. & Innovation, supra
note 30, at 1, 7.
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As explained above, a payment may
be ‘‘imposed directly or indirectly by
the creditor’’ and hence may be part of
the finance charge even if the credit can
be obtained without making the
payment.47 Under certain
circumstances, ‘‘tips’’ and similarly
styled consumer payments may be
‘‘imposed directly or indirectly by the
creditor’’ such that they are part of the
finance charge. A provider using its
authority—real or implied—to exact a
‘‘tip’’ from a consumer in connection
with an earned wage transaction has
‘‘imposed’’ the resulting consumer
payment.48 Relevant considerations
when determining whether a ‘‘tip’’ or
similar payment is imposed by the
creditor as part of the finance charge
include but are not limited to: soliciting
a ‘‘tip’’ before or at the time of a credit
extension (rather than some significant
time after it); labeling the solicited
payment with a term (such as ‘‘tip’’) that
carries an expectation that the consumer
will make such a payment in the normal
course; setting default ‘‘tip’’ amounts or
otherwise making it practically more
difficult for the consumer to avoid
leaving a ‘‘tip’’; suggesting ‘‘tip’’
amounts or percentages to the
consumer; repeatedly soliciting ‘‘tips,’’
even in the course of a single
transaction; and stating or otherwise
implying, directly or indirectly,
truthfully or otherwise, that ‘‘tipping’’
may impact subsequent access to or use
of the product.49
III. Regulatory Matters
This is a proposed interpretive rule
issued under the CFPB’s authority to
interpret TILA and Regulation Z,
including under section 1022(b)(1) of
the Consumer Financial Protection Act
of 2010, which authorizes guidance as
may be necessary or appropriate to
enable the CFPB to administer and carry
out the purposes and objectives of
47 As explained above, payments that are not
required as a condition of the credit but are
nonetheless incident to it can be ‘‘imposed directly
or indirectly by the creditor.’’ Including only
‘‘conditions of’’ the extension of credit in the
finance charge would improperly read ‘‘incident to’’
out of Regulation Z’s definition of finance charge,
and a creditor can ‘‘impose’’ a cost on a consumer
even if the cost is not required for the extension of
credit.
48 A consumer’s reasonable understanding that a
provider expects a ‘‘tip’’ in connection with a
transaction is evidence that the provider exacts it
as if by authority. This kind of reasonable
understanding does not depend on whether
‘‘tipping’’ impacts the supply of credit to the
consumer now or in the future.
49 The presence or absence of one or all of these
considerations may not be determinative. The
importance and relevance of these and other
considerations will vary in the context of a
particular product and how it is offered or provided
to consumers.
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61363
Federal consumer financial laws.50
While not required under the
Administrative Procedure Act (APA),
the CFPB is soliciting comments on the
proposal and may make revisions when
it issues a final interpretive rule as
appropriate in light of feedback
received.
By operation of TILA section 130(f),
no provision of TILA sections 130,
108(b), 108(c), 108(e), or section 112
imposing any liability would apply to
any act done or omitted in good faith in
conformity with the final interpretive
rule, notwithstanding that after such act
or omission has occurred, the final
interpretive rule is amended, rescinded,
or determined by judicial or other
authority to be invalid for any reason.51
The CFPB has determined that this
proposed interpretive rule, if finalized,
would not impose any new or revise any
existing recordkeeping, reporting, or
disclosure requirements on covered
entities or members of the public that
would be collections of information
requiring approval by the Office of
Management and Budget under the
Paperwork Reduction Act.52
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2024–16827 Filed 7–30–24; 8:45 am]
BILLING CODE 4810–AM–P
CONSUMER PRODUCT SAFETY
COMMISSION
16 CFR Part 1500
[CPSC Docket No. CPSC–2021–0015]
Banned Hazardous Substances:
Aerosol Duster Products Containing
More Than 18 mg in Any Combination
of HFC–152a and/or HFC–134a
Consumer Product Safety
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
The U.S. Consumer Product
Safety Commission (Commission or
CPSC) is proposing to declare that any
aerosol duster products that contain
more than 18 mg in any combination of
HFC–152a and/or HFC–134a are banned
hazardous substances under the Federal
Hazardous Substances Act (FHSA). For
the ten-year period from 2012 to 2021,
CPSC is aware of more than 1,000
deaths, and estimates 21,700 treated
injuries involving the inhalation of
aerosol duster products. The proposed
SUMMARY:
50 12
U.S.C. 5512(b)(1).
U.S.C. 1640(f).
52 44 U.S.C. 3501–3521.
51 15
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]]>Agencies
- CONSUMER FINANCIAL PROTECTION BUREAU
[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Proposed Rules]
[Pages 61358-61363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16827]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 89, No. 147 / Wednesday, July 31, 2024 /
Proposed Rules
[[Page 61358]]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
[Docket No. CFPB-2024-0032]
Truth in Lending (Regulation Z); Consumer Credit Offered to
Borrowers in Advance of Expected Receipt of Compensation for Work
AGENCY: Consumer Financial Protection Bureau.
ACTION: Notice of proposed interpretive rule; request for comment.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB) is charged
with promoting competition and innovation in consumer financial
products and services. After careful study of emerging offerings in the
paycheck advance marketplace, including those marketed as ``earned wage
advances'' and ``earned wage access,'' the CFPB is proposing this
interpretive rule to help market participants determine when certain
existing requirements under Federal law are triggered. The proposed
interpretive rule would also address certain costs that are in
substantial connection with extensions of such credit, such as
expedited delivery fees and costs marketed as ``tips.''
DATES: Comments must be received by August 30, 2024.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2024-
0032, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected].
Include Docket No. CFPB-2024-0032 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--2024 Paycheck
Advance Interpretive Rule, c/o Legal Division Docket Manager, Consumer
Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Because paper mail in the Washington, DC area and at the CFPB is
subject to delay, commenters are encouraged to submit comments
electronically.
Instructions: The CFPB encourages the early submission of comments.
All submissions must include the document title and docket number. In
general, all comments received will be posted without change to https://www.regulations.gov. All submissions, including attachments and other
supporting materials, will become part of the public record and subject
to public disclosure. Proprietary information or sensitive personal
information, such as account numbers or Social Security numbers, or
names of other individuals, should not be included. Submissions will
not be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
One major source of demand for consumer credit is derived from the
mismatch of when American workers receive compensation for their labor
and when they incur expenses. While there have long been sources of
credit for consumers to pay expenses in advance of receiving their
compensation, there are a number of new offerings that seek to provide
additional choices for consumers.
Instead of being paid daily or upfront, American workers generally
provide services before employers pay for those services some time
later--typically on a biweekly or semi-monthly wage cycle.\1\ Employers
have a strong incentive to delay payment, since these delays reduce
working capital needs. Nearly three-quarters of non-farm payroll
employees remain paid biweekly or even less frequently, and the
remainder are generally paid their wages weekly. To address liquidity
challenges, many consumers therefore turn to third-party credit
products, such as payday loans, personal installment loans, and credit
cards. In recent years, American consumers have significantly expanded
their use of products sometimes marketed as ``earned wage access'' or
``earned wage advance.'' \2\ As these paycheck advance products
generally have features that make them subject to the CFPB's
jurisdiction, the CFPB has sought to understand these and other
products, particularly those offered online, by engaging in ongoing
monitoring of the market, including, for example, collecting and
analyzing data, engaging with stakeholders (e.g., market participants,
consumer groups, and States), tracking and studying market
developments, and conducting market research, among other things.
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\1\ While the terms ``employer'' and ``employee'' are used
throughout, the proposed interpretive rule would apply more broadly
to situations where consumers receive payment for work performed.
\2\ A CFPB report describes rapid recent growth in one part of
this developing market. See CFPB, Developments in the Paycheck
Advance Market, at 3 (July 2024) (hereinafter 2024 Paycheck Advance
Report).
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While many of these products have similarities to payday loans,
there are important distinctions. The CFPB has found that there are two
emerging models of earned wage products: employer-partnered and direct-
to-consumer.
For ``employer-partnered'' products, providers contract with
employers to offer funds in amounts not exceeding accrued wages. Those
funds are recovered via one or more payroll deductions, lowering the
consumer's paychecks accordingly, with other recourse options generally
unavailable to the third-party provider. In contrast, ``direct-to-
consumer'' products provide funds to employees in amounts that they
estimate to be below accrued wages; funds are then recovered via
automated withdrawal from the consumer's bank account,\3\ and generally
without limit to the provider's ability to seek further recourse as
necessary.\4\
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\3\ This includes, without limitation, e.g., prepaid and payroll
card accounts.
\4\ As described, direct-to-consumer products lie outside the
scope of the ``wage advance'' (12 CFR 1041.3(d)(7)) and ``no cost
advance'' (12 CFR 1041.3(d)(8)) exclusions from the CFPB's 2017
Payday Rule. Employer-partnered products, however, may be (but are
not necessarily) within the scope of one exclusion or both, with
their revenue model particularly relevant to that determination. See
12 CFR 1041.3(d)(7)(ii)(A), (d)(8).
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Some of the significant differences between these two types of
earned wage products, however, are starting to erode.
[[Page 61359]]
For example, some direct-to-consumer providers are now connecting
directly to payroll records and recouping funds from payroll
deductions, and ongoing State legal developments may cause them to
limit their recourse options as well.\5\
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\5\ See 2024 Paycheck Advance Report, supra note 2, at 4 n.7.
Several recently enacted State laws prohibit providers of earned
wage products, including direct-to-consumer products, from
compelling consumer repayment of earned wage amounts and fees
through various means, such as lawsuits or third-party debt
collection. See, e.g., 24 Mo. Rev. Stat. sec. 361.749(5)(6); Wis.
Stat. sec. 203.04(2)(f); cf. Montana Op. Att'y Gen., Vol. 59, Op. 2
(Dec. 22, 2023) (finding earned wage products do not meet the state
law definitions of ``consumer loan'' or ``deferred deposit loan''
when they are ``fully non-recourse,'' among other criteria).
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Before the CFPB's market monitoring of these products intensified,
the CFPB issued an advisory opinion in November 2020,\6\ that described
how one particular type of earned wage product does not involve the
offering or extension of ``credit'' as that term is defined in
Regulation Z (12 CFR part 1026) and the Truth in Lending Act (TILA).\7\
The opinion explained 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.
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\6\ CFPB, Truth in Lending (Regulation Z); Earned Wage Access
Programs (Nov. 2020), https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinion_earned-wage-access_2020-11.pdf (hereinafter
2020 Advisory Opinion).
\7\ Regulation Z defines credit at Sec. 1026.2(a)(14).
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The 2020 advisory opinion was silent about whether earned wage
products that do not meet all of these conditions are credit under TILA
and Regulation Z.\8\ The opinion did not address what counts under TILA
and Regulation Z as a finance charge with respect to any such product
that is credit. As the CFPB has acknowledged, the 2020 advisory opinion
appears to have caused significant regulatory uncertainty.\9\
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\8\ The opinion stated that it had no application to such
products. See 2020 Advisory Opinion, supra note 6, at 3-7.
\9\ See, e.g., Nat'l Consumer L. Ctr., Ctr. for Responsible
Lending, Concern About Prior Leadership's Finding that Certain
Earned Wage Access Products Are Not ``Credit'' Under TILA, Nat'l
Consumer L. Ctr., Ctr. for Responsible Lending, at 36-37 (Oct. 12,
2021), https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/crl-nclc-ewa-letter-to-cfpb-oct2021.pdf
(noting ``chaos'' and ``further questions'' caused by advisory
opinions); U.S. Gov't Accountability Off., GAO-23-105536, Financial
Technology: Products Have Benefits and Risks to Underserved
Consumers, and Regulatory Clarity is Needed, at 36-37 (Mar. 2023),
https://www.gao.gov/assets/gao-23-105536.pdf (citing industry
requests for clarification). The CFPB has acknowledged the need for
clarification in this area. See, e.g., Letter from CFPB Director
Rohit Chopra (Feb. 13, 2023) in U.S. Gov't Accountability Off.,
supra, at 51; Letter from CFPB Acting General Counsel to N.J.
Citizen Action, et al., at 2 (Jan. 18, 2022).
Problematically, the 2020 advisory opinion has been widely cited
in support of legal conclusions that it did not reach. For example,
it has erroneously been cited for the general propositions that no-
fee earned wage products are not credit, see, e.g., Ariz. Op. Att'y
Gen. No. I22-005 (Dec. 16, 2022), https://www.azag.gov/sites/default/files/2022-12/I22-005.pdf, and that employer-partnered
earned wage products are also not credit, see, e.g., ZayZoon,
Comment Letter on Cal. Dep't of Fin. Prot. & Innovation re: Notice
of Proposed Rulemaking [PRO 01-21], at 4 (May 17, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/46-PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf; Innovative Payments Ass'n,
Comment Letter on Cal. Dep't of Fin. Prot. & Innovation re: Notice
of Proposed Rulemaking [PRO 01-21], at 4 (May 11, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/10-PRO-01-21-Innovative-Payments-Association-5.11.23_Redacted.pdf. Some
regulatory uncertainty may have resulted from the near-
contemporaneous issuance of a ``Sandbox Approval Order'' that gave
one provider a temporary safe harbor from liability under TILA and
Regulation Z with respect to a specific product that did not satisfy
all the conditions that the 2020 advisory opinion identified as
taking such a product outside the reach of TILA and Regulation Z.
See CFPB, Payactiv Approval Order, at 5 (Dec. 30, 2020), https://files.consumerfinance.gov/f/documents/cfpb_payactiv_approval-order_2020-12.pdf. The 2020 advisory opinion applied only to
products that had all of a number of characteristics, including that
they were free to consumers. In contrast, the approval order
encompassed earned wage transactions in connection with which the
consumer incurred fees. See id. The approval order was issued under
a CFPB policy that is no longer in effect. See generally CFPB,
Statement on Competition and Innovation (Sept. 30, 2022), https://files.consumerfinance.gov/f/documents/cfpb_statement-on-competition-innovation_2022-09.pdf. However, that approval order was never of
general interpretative applicability, see Payactiv Approval Order,
supra, at 4 n.15, and was terminated even before its temporary
status expired, CFPB, CFPB Rescinds Special Regulatory Treatment for
Payactiv (June 30, 2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-rescinds-special-regulatory-treatment-for-payactiv/.
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The CFPB is taking a number of steps to spur greater competition in
markets for consumer financial products, including to address the
credit needs of households who incur costs due to a mismatch in the
timing of their income and expenses. In addition, some market
participants and investors seek to better understand the applicability
of existing federal law in these emerging business models. To provide
greater clarity, the CFPB is proposing to replace the 2020 advisory
opinion with a new interpretive rule. In light of the uncertainty
caused by the 2020 advisory opinion as noted above and the fact that
the CFPB is proposing to overturn and replace that opinion, the CFPB is
opting to publish this proposed interpretive rule to solicit public
comment. The proposed interpretive rule is informed by the CFPB's
extensive study of this market, including data collection, continuous
monitoring, investigation, coordination with states, and engagement
with market participants. The CFPB is seeking comment on any aspect of
this this proposed interpretive rule. The CFPB intends to publish a
final interpretive rule after considering comments received.
II. Proposed Interpretive Rule
The text of the proposed interpretive rule is as follows.
A. Coverage
1. Earned Wage Products
This interpretive rule applies to products that involve both: (1)
the provision of funds to the consumer in an amount that is based, by
estimate or otherwise, on the wages that the consumer has accrued in a
given pay cycle; and (2) repayment to the third-party provider via some
automatic means, like a scheduled payroll deduction or a preauthorized
account debit,\10\ at or after the end of the pay cycle. Many payday
loans would also meet this definition where the lender or State law
restricts the amount of the loan based on accrued wages.\11\
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\10\ This includes repayment via ACH, check, or any other
preauthorized repayment.
\11\ This interpretive rule does not apply to an employer's
actual payment of wages. Note that while the terms ``employer'' and
``employee'' are used throughout, this interpretive rule applies
more broadly to situations where consumers receive payment for work
performed.
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2. Other Products and Other Laws
This interpretive rule only addresses the application of certain
Regulation Z and TILA provisions; it does not address the application
of any other laws that concern ``credit.'' Because the rule explains
the applicability of Regulation Z, the rule may be useful to designers
and creators of other financial products, including those relying on
``tips'' and other related payment mechanisms.
B. Legal Analysis
1. The Truth in Lending Act and Regulation Z Cover Products Where There
Is an Obligation to Repay Debt
Section 1026.2(a)(14) of Regulation Z defines ``credit'' as ``the
right to defer payment of debt or to incur debt and defer its
payment.'' \12\ TILA defines ``credit'' virtually identically as ``the
right granted by a creditor to a debtor to defer payment of debt or to
incur debt
[[Page 61360]]
and defer its payment.'' \13\ As described further below, earned wage
products are consumer credit for purposes of TILA and Regulation Z.
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\12\ 12 CFR 1026.2(a)(14).
\13\ 15 U.S.C. 1602(f).
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TILA and Regulation Z do not define ``debt.'' Used infrequently in
the statute and the regulation, ``debt'' for the most part only appears
in the definition of ``credit.'' The term ``debt'' in ordinary usage
means simply ``something owed,'' without any obvious limitation.\14\
Legal dictionaries, including those dating to the enactment of
TILA,\15\ similarly describe debt as a ``sum of money due by certain
and express agreement'' or ``a financial liability or obligation owed
by one person, the debtor, to another, the creditor.'' \16\ If Congress
had intended to substantially narrow the types of transactions that
could constitute ``debt,'' it could have done so by defining the term
in TILA.\17\ In light of this precedent, and the context in which the
term ``debt'' appears in TILA, ``debt'' in TILA and Regulation Z
includes any obligation by a consumer to pay another party.
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\14\ Debt, Merriam-Webster, https://www.merriam-webster.com/dictionary/debt (last updated Jan. 30, 2024).
\15\ See New Prime Inc. v. Oliveira, 586 U.S. 105, 113 (2019)
(``It's a fundamental canon of statutory construction that words
generally should be interpreted as taking their ordinary meaning at
the time Congress enacted the statute.'') (cleaned up).
\16\ Debt, Black's Law Dictionary (4th ed. 1968) (defining debt
as ``[a] sum of money due by certain and express agreement; as by
bond for a determinate sum, a bill or note, a special bargain, or a
rent reserved on a lease, where the amount is fixed and specific,
and does not depend upon any subsequent valuation to settle it.'');
Debt, Wex, https://www.law.cornell.edu/wex/debt (last updated Sept.
2021).
\17\ As the Court observed in Whitman v. Am. Trucking Ass'ns,
``Congress, we have held, does not alter the fundamental details of
a regulatory scheme in vague terms or ancillary provisions--it does
not, one might say, hide elephants in mouseholes.'' 531 U.S. 457,
468 (2001).
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This commonsense understanding of debt is reflected in State laws
\18\ defining the term, which also tend to use very broad language to
describe debt to mean an obligation by the consumer to pay.\19\
Bankruptcy law also uses a broad definition--``liability on a claim,''
where a ``claim'' is ``the right to payment, whether or not such right
is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.'' \20\
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\18\ See 12 CFR 1026.2(b)(3) (providing interpretive guidance
with respect to undefined terms). As the Board of Governors of the
Federal Reserve System noted when it first proposed Sec.
1026.2(b)(3), the provision and its fellow rules of construction
``are intended to assist in understanding the regulatory language.''
45 FR 29702, 29705 (May 5, 1980).
\19\ See, e.g., Cal. Civ. Code sec. 1788.2(d) (``The term `debt'
means money, property, or the equivalent that is due or owing or
alleged to be due or owing from a natural person to another
person.''); Colo. Rev. Stat. Ann. sec. 5-16-103(8)(a) (`` `Debt'
means any obligation or alleged obligation of a consumer to pay
money arising out of a transaction, whether or not the obligation
has been reduced to judgment.''); D.C. Code Ann. sec. 28-3814(b)(2)
(`` `Consumer debt' means money or its equivalent, or a loan or
advance of money, which is, or is alleged to be, more than 30 days
past due and owing, unless a different period is agreed to by the
consumer, as a result of a purchase, lease, or loan of goods,
services, or real or personal property for personal, family,
medical, or household purposes.''); Fla. Stat. Ann. sec. 559.55(6)
(`` `Debt' or `consumer debt' means any obligation or alleged
obligation of a consumer to pay money arising out of a transaction
in which the money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family, or
household purposes, whether or not such obligation has been reduced
to judgment.''); Haw. Rev. Stat. Ann. sec. 480D-2 (`` `Debt' means
any obligation or alleged obligation of a person to pay money
arising out of any transaction, whether or not the obligation has
been reduced to judgment.''); Me. Rev. Stat. tit. 32, sec. 11002(5)
(`` `Debt' means any obligation or alleged obligation of a consumer
to pay money arising out of a transaction in which the money,
property, insurance or services that are the subject of the
transaction are primarily for personal, family or household
purposes, whether or not the obligation has been reduced to
judgment.''); N.H. Rev. Stat. Ann. sec. 358-C:1(VI) (`` `Debt' means
any obligation or alleged obligation arising out of a consumer
transaction.''); N.M. Stat. Ann. sec. 61-18A-2(F) (`` `[D]ebt' means
an obligation or alleged obligation of a debtor to pay money arising
out of a transaction in which the money, property, insurance or
services that are the subject of the transaction are primarily for
personal, family or household purposes, whether or not such
obligation has been reduced to judgment.''); N.Y. Gen. Bus. Law sec.
600(6) (`` `Debt' means any obligation or alleged obligation of a
consumer to pay money arising out of a transaction in which the
money, property, insurance, or services which are the subject of the
transaction are primarily for personal, family, or household
purposes, whether or not such obligation has been reduced to
judgment.''); N.D. Cent. Code Ann. sec. 13-05-01.1(6) (`` `Debt'
means an obligation or alleged obligation to pay money arising out
of a transaction, regardless of whether the obligation has been
reduced to a judgment.''); Or. Rev. Stat. Ann. sec. 646.639(f) (``
`Debt' means an obligation or alleged obligation that arises out of
a consumer transaction.''); 19 R.I. Gen. Laws Ann. sec. 19-14.9-3(4)
(`` `Debt' means any obligation or alleged obligation of a consumer
to pay money arising out of a transaction in which the money,
property, insurance, or services that are the subject of the
transaction are primarily for personal, family, or household
purposes, whether or not the obligation has been reduced to
judgment.''); Tex. Fin. Code Ann. sec. 392.001(2) (`` `Consumer
debt' means an obligation, or an alleged obligation, primarily for
personal, family, or household purposes and arising from a
transaction or alleged transaction.''); Utah Code Ann. sec. 12-1-
11(1)(b) (`` `Debt' means an obligation or alleged obligation to pay
money arising out of a transaction for money, property, insurance,
or services.''); Wash. Rev. Code Ann. sec. 6.01.060(2) (`` `Consumer
debt' means any obligation or alleged obligation of a consumer to
pay money arising out of a transaction in which the money, property,
insurance, or services which are the subject of the transaction are
primarily for personal, family, or household purposes.''); Wyo.
Stat. Ann. sec. 33-11-101(a)(vii) (`` `Debt' means any obligation or
alleged obligation of a consumer to pay money arising out of a
transaction in which the money, property, insurance or services
which are the subject of the transaction are primarily for personal,
family or household purposes, whether or not the obligation has been
reduced to judgment.'').
\20\ 11 U.S.C. 101(5)(A), (12). Bankruptcy law defines
``consumer debt'' as ``debt incurred by an individual primarily for
a personal, family, or household purpose.'' 11 U.S.C. 101(8).
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The only enumerated consumer financial law identified in the
Consumer Financial Protection Act \21\ that defines ``debt,'' the Fair
Debt Collection Practices Act (FDCPA), broadly states that debt
encompasses ``any obligation or alleged obligation of a consumer to pay
money arising out of a transaction in which the money, property,
insurance, or services which are the subject of the transaction are
primarily for personal, family, or household purposes, whether or not
such obligation has been reduced to judgment.'' \22\ The main limiting
feature in the definition of ``debt'' in the FDCPA is that it is
limited to transactions for personal, family, or household purposes, a
limitation already imposed elsewhere in TILA.\23\ The FDCPA definition,
therefore, also supports a broad reading of ``debt'' under TILA and
Regulation Z in this context, consistent with ordinary usage that
includes all obligations to pay another.
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\21\ 12 U.S.C. 5481(12).
\22\ 15 U.S.C. 1692a(5); see also 12 CFR 1006.2(h); Pollice v.
Nat'l Tax Funding, 225 F.3d 379, 410 (3d Cir. 2000) (``Although
[TILA] does not contain a definition of the term `debt,' we believe
the term as used in [TILA] should be construed as it is defined in
the FDCPA.''). Like TILA, the Consumer Financial Protection Act and
Equal Credit Opportunity Act, for example, use the term ``debt'' in
their definitions of ``credit'' without defining it. See 12 U.S.C.
5481(7); 15 U.S.C. 1691a(d).
\23\ 15 U.S.C. 1602(g), (i).
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In an earned wage transaction, the consumer incurs an obligation to
pay money at a future date. For some earned wage products, the specific
amount of money that the consumer is obligated to pay at a future date
has an element of contingency; for example, the obligation may be
limited by whether funds available from the next payroll event (or
events) are sufficient to cover the amount of earned wage funds the
consumer received. But that is still an obligation to pay money at a
future date. TILA has long been understood to cover contingent
obligations.\24\
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\24\ See, e.g., Madewell v. Marietta Dodge, Inc., 506 F. Supp.
286 (N.D. Ga. 1980) (retail installment contract for purchase of
automobile subject to TILA even though contingent on seller's
ability to arrange financing); Bailey v. Comm'r of Internal Revenue,
993 F.2d 288, 292 (2d Cir. 1993) (discussing ``[n]onrecourse
debt''); 12 CFR 1026.33(a) (reverse mortgages--where repayment is
contingent on future home value at the time of a termination event,
such as the death of the borrower--subject to TILA as credit); cf.
Small Business Lending Under the Equal Credit Opportunity Act
(Regulation B), 88 FR 35150, 35163 (May 31, 2023) (explaining that
merchant cash advances--under which a provider offers a merchant a
lump sum in exchange for a specific portion of the merchant's
proceeds from future sales of goods and services--are credit,
notwithstanding that the repayment obligation may be contingent on
the merchant's future sales); Consent Order, In re Better Future
Forward, Inc., Admin. Proceeding No. 2021-CFPB-005 (Sept. 7, 2021)
(identifying as credit income share agreements, which ``finance
postsecondary education'' whereby ``[i]n exchange for money up
front, students agree that once their income exceeds an income
threshold, they will make payments based on a percentage of their
income until either: (i) they meet a payment cap or (ii) a period of
years elapses.'').
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[[Page 61361]]
Earned wage products provide consumers with ``the right to defer
payment of debt or to incur debt and defer its payment'' because they
incur a ``debt'' when they obtain money with an obligation to repay via
an authorization to debit a bank account or using one or more payroll
deductions.\25\ It does not matter that the obligation to repay is
sometimes satisfied via payroll deduction.\26\ It is still an act of
repayment. In contrast, when an employer pays wages, no later act of
repayment is required, by deduction or otherwise.
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\25\ Earned wage products are offered or extended to consumers
primarily for personal, family, or household purposes, so they also
meet the Regulation Z definition of ``consumer credit.'' 12 CFR
1026.2(a)(12).
\26\ It is not uncommon for credit providers to compel repayment
of debt using wage garnishment automatically deducted from consumer
paychecks. Payday lenders are sometimes repaid through court-ordered
wage garnishment. See CFPB, Ask CFPB: Can a Payday Lender Garnish My
Bank Account or My Wages? (last reviewed Sept. 23, 2022), https://www.consumerfinance.gov/ask-cfpb/can-a-payday-lender-garnish-my-wages-en-1609/. Consumers may pay some lenders directly by paycheck
allotment. Cf. 12 CFR part 1026, supplement I, comment 2(a)(14)-2
(``Credit includes a transaction in which a cash advance is made to
a consumer . . . in exchange for the consumer's authorization to
debit the consumer's deposit account, and where the parties agree .
. . that the consumer's deposit account will not be debited, until a
designated future date.'').
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This interpretive rule replaces the advisory opinion the CFPB
issued in November 2020, which stated that some earned wage products
are not ``credit'' because they would not constitute a ``debt.'' \27\ A
primary justification for this statement, based on a legal dictionary
definition of ``debt'' requiring a ``liability,'' was that the narrow
type of earned wage products covered by that opinion--which, among
other characteristics, were administered through the employer and cost-
free to the consumer--were ``effectively'' providing earned wages to
consumers early and, therefore, were not debts. Per the analysis above,
the 2020 advisory opinion--narrowly focused as it was on one unique
type of product--did not consider the full scope of available precedent
and definitions in common legal usage when reaching its narrow
conclusion.\28\ Many credit products are used to gain liquidity in
advance of receipt of a paycheck and thus will have some de facto
resemblance to early payment of wages, but that does not take them
outside the definition of credit. Earned wage products, as distinct
from an employer's actual payment of wages, are no exception.\29\
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\27\ See 2020 Advisory Opinion, supra note 6.
\28\ The 2020 advisory opinion stated that there would not be a
``liability.'' That word is not used in all dictionary definitions
of the term ``debt,'' and regardless, the earned wage product did
require repayment.
\29\ The CFPB also noted that the 2020 advisory opinion would be
consistent with 12 CFR part 1026, supplement I, comment 2(a)(14)-
A31JY2.1.v. See 2020 Advisory Opinion, supra note 6, at 9. However,
that comment was promulgated as an exclusion from the definition of
``credit'' after notice and comment, which suggests that the product
would be subject to TILA and Regulation Z but for the exclusion.
Products similar to products in the exclusion, but not covered by
the exclusion, should therefore be presumed to be ``credit.''
In the 2020 advisory opinion, the CFPB also noted that its
interpretation was consistent with certain statements in the CFPB's
2017 Payday Lending Rule. However, the Payday Rule did not make a
determination as to whether earned wage products are credit, stating
only that some product constructs ``may not be.'' The CFPB declined
to perform the more detailed analysis necessary to come to a
considered conclusion on the boundaries of TILA and Regulation Z at
that time because that was not necessary for the rulemaking
exercise. It is performing that analysis now, in this interpretive
rule. Some earned wage products may not be covered by the Payday
Rule because of its ``wage advance'' and ``no cost advance''
exclusions. See 12 CFR 1041.3(d)(7) and (8). However, these
exclusions can only apply to earned wage products to the extent that
such products are TILA and Regulation Z credit. As a result, the
CFPB's earlier decision to exclude certain earned wage product
constructs from the Payday Rule has no impact on the credit status
of such products under TILA or Regulation Z.
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Moreover, because the 2020 advisory opinion only addressed one
particular type of product, its analysis does not shed light on how
TILA and Regulation Z apply to new offerings on the market. The 2020
advisory opinion found that the products it addressed ``functionally
operate[ ] like an employer that pays its employees earlier than the
scheduled payday,'' but earned wage products in which, for example,
consumers make a payment in connection with receiving funds do not
leave consumers in the same position that they would be if their
employer just paid them earlier. While the 2020 advisory opinion
emphasized the absence of fees or charges to support its conclusion
that covered products were different in kind from the credit covered by
TILA and Regulation Z, except on a small number of employer-specific
products, the vast majority of earned wage transactions involve
consumer payment.\30\
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\30\ See, e.g., 2024 Paycheck Advance Report, supra note 2, at
11 (``Without employer subsidization, across both years in our
[employer-partnered earned wage] sample, around 90% of workers paid
at least one fee and approximately 82% of transactions incurred a
fee.''); Cal. Dep't of Fin. Prot. & Innovation, 2021 Earned Wage
Access Data Findings, at 7 (2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/2021-Earned-Wage-Access-Data-Findings-Cited-in-ISOR.pdf (``In 2021, for the 5,827,120 transactions
completed by tip-based companies, providers received tips 73% of the
time.''). To the extent the interpretation underlying the 2020
Payactiv approval order articulated a different rationale regarding
fees or charges for earned wage transactions, the CFPB no longer
believes that interpretation is correct.
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2. Finance Charge Disclosures Include Consumer Payments That Are Made
Incident to the Extension of Credit and Imposed by the Creditor
Directly or Indirectly on the Consumer
a. General
In general, the obligations of Regulation Z apply to any credit
provider that regularly offers or extends consumer credit subject to a
finance charge.\31\ The finance charge is ``the cost of consumer credit
as a dollar amount.'' \32\ Unless specifically excluded by the
regulation, this includes ``any charge payable directly or indirectly
by the consumer and imposed directly or indirectly by the creditor as
an incident to or a condition of the extension of credit.'' \33\ If
providers do not disclose finance charges properly, they violate
Regulation Z.
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\31\ See 12 CFR 1026.1(c)(1)(iii). Note that finance charges are
not a necessary precondition for the obligations of Regulation Z to
apply to a provider of Regulation Z credit. For example, the
requirements of Regulation Z will apply where the provider regularly
offers or extends consumer credit that is payable by a written
agreement in more than four installments, even if the credit
provided is not subject to finance charges. See id. As another
example, certain Regulation Z requirements apply when the offering
or extension of consumer credit involves a credit card, even if the
credit is not subject to a finance charge. See 12 CFR 1026.1(c)(2).
This interpretive rule does not state any view about grounds on
which an earned wage provider of Regulation Z credit might be
subject to Regulation Z obligations other than due to their
provision of credit subject to a finance charge.
\32\ 12 CFR 1026.4(a).
\33\ Id.
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Neither Regulation Z nor TILA further explains the meaning of
``incident to the extension of credit.'' The statute's history and
context indicate that Congress intended this term to be interpreted
expansively. When TILA was enacted in 1968, Black's Law Dictionary
defined ``incident'' to mean ``anything which is usually connected with
another, or connected for some purposes, though not inseparably.'' \34\
The phrase ``incident to the extension of credit'' thus did not require
that the degree of connection be significant. The Supreme Court, in a
unanimous decision by Justice Thomas, noted in the context of TILA's
finance charge
[[Page 61362]]
provision that while ``the phrase `incident to or in conjunction with'
implies some necessary connection between the antecedent and its object
. . . the phrase `incident to' does not make clear whether a
substantial (as opposed to a remote) connection is required.'' \35\
Thus, while a substantial connection may not be the minimum degree of
connection required under Regulation Z and TILA for a payment to be
part of the consumer's cost of credit, as an interpretive matter, any
payment exacted by the creditor that is substantially connected must be
part of the finance charge.\36\
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\34\ Incident, Black's Law Dictionary (4th ed. 1968).
\35\ Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232,
240-41 (2004). In Pfennig, the Supreme Court held that an overlimit
fee was not unambiguously imposed as an incident to the extension of
credit because it could reasonably be seen as a penalty for
violation of the credit agreement instead. See id. at 239-41. The
Court recognized that ``regardless of how the fee is
characterized,'' there was ``at least some connection'' between the
fee and credit extension, but that was not enough to conclude that
the fee was necessarily imposed as an ``incident to'' credit because
the term ``does not make clear whether a substantial (as opposed to
a remote) connection is required.'' Id. at 241.
\36\ This interpretive rule does not seek to establish the
degree of connection required beyond interpreting ``incident to'' to
cover charges that are substantially connected to a particular
extension of credit.
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In addition, a payment may be ``imposed directly or indirectly by
the creditor'' and hence part of the finance charge even if the credit
can be obtained without making such payment. Regulation Z includes in
the cost of credit payments imposed by the creditor that are
``conditions of'' the extension of credit and that are ``incident to''
it.\37\ By the same token, a creditor can ``impose'' a cost on a
consumer--in the sense of exacting it from them--``directly or
indirectly'' even if that payment is not required for the extension of
credit.\38\ The non-exhaustive list of finance charges provided in
Regulation Z includes consumer payments that, even when they are not a
condition of the extension of credit, are nonetheless finance charges
because the creditor exacts them in connection with the extension of
credit.\39\
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\37\ TILA's definition of finance charge only references charges
imposed ``as an incident to the extension of credit.'' 15 U.S.C.
1605(a). The Board's implementing regulation then interprets the
statutory term ``incident to'' as encompassing--while not being
limited to--payments that are conditions of the extension of credit.
See 12 CFR 1026.4(a). This interpretation has been in uninterrupted
effect since the Board first adopted TILA regulations on point.
\38\ TILA's history and context indicate that Congress intended
the word ``imposed'' to be interpreted broadly to encompass a
variety of charges the creditor might seek to have a consumer pay in
connection with the extension of credit. The finance charge
definition uses parallel language: the charges are ``payable
directly or indirectly by'' the consumer, and ``imposed directly or
indirectly by'' the creditor. The structure of the provision thus
uses ``imposed'' as a counterpoint to ``payable,'' so as to identify
the party doing the charging as opposed to the party being charged.
Similarly, the 1968 Black's Law Dictionary definition of
``impose''--``to levy or exact as by authority; to lay as a burden,
tax, duty, or charge''--emphasizes the deployment of power by the
party doing the imposing. Impose, Black's Law Dictionary (4th ed.
1968). As the Board previously noted, ``the term `imposed' is
understood broadly, to include any cost charged by the creditor
(unless otherwise excluded).'' 60 FR 66179, 66180 (Dec. 21, 1995).
See also, e.g., Impose, Merriam-Webster, https://www.merriam-webster.com/dictionary/impose (last updated Feb. 9, 2024) (defining
``impose'' with a range of meanings, from ``to establish or apply by
authority'' to ``to establish or bring about as if by force'' to
simply ``pass off'' (emphasis added)).
\39\ See 12 CFR 1026.4(b); see also 61 FR 49237, 49239 (Sept.
19, 1996) (explaining that payments for services that the creditor
does not require can still be finance charges when the payment is
``imposed as an incident to that particular extension of credit'');
cf. Incident, Black's Law Dictionary (11th ed. 2019) (defining
``incident'' as ``[d]ependent upon, subordinate to, arising out of,
or otherwise connected with (something else, usu. of greater
importance)'').
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Two costs that consumers may incur in connection with particular
extensions of earned wage credit are ``tips'' (and other similarly
labeled payments, like ``gratuities'') and expedited funds delivery
fees. When incurred, these payments are substantially connected to the
extension of credit. Each happens because of the associated extension
of credit, and the connection between each type of payment and that
extension is close and clear. Thus, each is incident to the extension
of credit. Expedited funds delivery fees are also ``imposed directly or
indirectly by the creditor'' and so should be included as part of the
``cost of consumer credit as a dollar amount.'' Under certain
circumstances, discussed further below, ``tips'' and similarly styled
consumer payments may similarly be ``imposed directly or indirectly by
the creditor'' such that they are a part of the finance charge.
b. Expedited Funds Delivery Fees
Speed of access to funds is an integral and defining aspect of
earned wage products. They are designed to address--and marketed as
addressing--the liquidity problem that arises between the accrual of
wages and their actual payment. That problem necessarily occurs in a
very short period,\40\ so the value of this type of credit to the
consumer includes the rapid availability of funds. Thus, when earned
wage product providers offer two speeds for delivering funds (which
they typically do), consumers predominantly opt for the faster.\41\
That option typically involves direct imposition of an expedited
delivery or ``instant funds'' fee that the creditor does not impose on
the slower form of credit.
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\40\ To obtain earned wage credit, consumers must first accrue
wages within a given pay period. Repayment then occurs at or very
shortly after the conclusion of that same pay period. As a result,
the duration of any particular earned wage credit extension has to
be very brief.
\41\ See 2024 Paycheck Advance Report, supra note 2, at 11. For
the sample of employer-partnered providers covered in the CFPB's
2024 Report, expedited delivery fees accounted for more than 96.6
percent of all consumer-paid fee revenue by dollar value. See id.
Public data also indicates that earned wage advance providers
relying on a tipping revenue model obtain more than 25 percent of
the dollar value of consumer payments as expedited delivery fees.
See Cal. Dep't of Fin. Prot. & Innovation, supra note 30, at 6 n.11,
7.
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Availability of a slower speed does not control the cost of credit
for the faster form of credit. Though consumers may not have to opt for
faster funds, when they do so, the resulting speed is a feature of the
credit extended, so the resulting fee is part of the cost of credit. As
observed by the Board of Governors of the Federal Reserve System,
``even though a lender may not require a particular loan feature, the
feature may become a term of the credit if it is included.'' \42\ The
speed with which earned wage credit provides liquidity to the consumer
is an integral feature of such credit, which is why consumers tend to
opt for faster delivery when it is available. Thus, when the consumer
pays for that faster delivery, the associated fee is immediately and
directly connected to the particular extension of credit. That
substantial connection makes this ``a fee imposed as an incident to
that particular extension of credit,'' and accordingly one that must be
disclosed as part of the finance charge.\43\
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\42\ 61 FR 49237, 49239 (Sept. 19, 1996). The expedite fee at
issue here differs in kind from the two types of expedite fees
previously considered by the Board of Governors of the Federal
Reserve System in the context of credit cards accessing home equity
lines of credit: a fee for expediting delivery of the physical card,
and a fee for expediting a consumer's payment. See 12 CFR part 1026,
supplement I, comments 6(a)(2)-2(ix) and (x). The Board determined
that fees for those services did not need to be included in account
opening disclosures as ``other charges'' or ``finance charges.'' See
68 FR 16185, 16186-87 (Apr. 3, 2003). Neither of those services--
faster possession of a physical card or faster payments of amounts
outstanding--are as closely and integrally connected to the
extension of credit as faster funds access is to obtaining an earned
wage product.
\43\ Cf. 61 FR 49237, 49239 (Sept. 19, 1996) (noting with
respect to debt cancellation fees that ``[a]lthough the same loan
may be available without that feature, with respect to a loan that
has been structured in this manner, the . . . fee is one that has
been imposed as an incident to that particular extension of
credit''). Before this clarification from the Board, the Eleventh
and Seventh Circuits had held that charges for optional services
should not be considered finance charges because the consumer
assumed their payment voluntarily. See Veale v. Citibank, 85 F.3d
577, 579-81 (11th Cir. 1996); McGee v. Kerr-Hickman, 93 F.3d 380,
381-86 (7th Cir. 1996). The CFPB sees no textual basis in the
regulation (or statute) to disagree with the Board's considered 1996
position on payment for voluntary services. As the Board discerned,
it does not matter that it is possible to obtain credit without the
relevant service if the service is a feature of the loan affecting
the total price paid for the credit.
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[[Page 61363]]
Regulation Z also covers expedited delivery fees as finance charges
because such a fee is a ``condition'' of an extension of credit. As
noted above, when an earned wage product provider offers a slower and
faster loan, and the faster loan requires payment of an expedited
delivery fee, the expedited delivery fee is a ``condition'' of the
extension of that type of credit.
c. ``Tips'' and Similarly Labeled Payments
In connection with the extension of earned wage credit, some
providers solicit consumers for what they variously describe as
``tips,'' ``gratuities,'' ``donations,'' ``voluntary contributions,''
or the like. The CFPB is aware of a wide range of practices used by
credit providers to solicit these kinds of payments from consumers,
including: default ``tip'' amounts that the consumer must remove each
time to avoid being charged; suggesting particular ``tip'' amounts or
percentages; suggesting or stating that ``tips'' serve to ensure the
future supply of credit to the individual or other users; and including
multiple prompts to ``tip'' throughout the process of receiving credit.
Whatever the exact practice used, when such ``tip'' payments are
solicited and then paid in connection with the extension of credit,
there is a clear and close connection between the ``tip'' and the
associated extension of credit. In such circumstances, consumers pay
the ``tip'' for the credit extended, and the credit is the direct and
proximate cause of the ``tip.'' \44\ That substantial connection
between payment and associated extension of credit means that the
payment is ``incident to . . . the extension of credit.'' \45\ Indeed,
as a practical matter, tips are a central source of revenue for the
earned wage product providers that solicit them. For such providers,
public data shows that consumers made ``tip'' payments in connection
with about 73 percent of all such credit extensions, with such payments
representing roughly the same share of consumer-side revenue for these
providers.\46\
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\44\ Such payments are not tips or gratuities in any traditional
sense. Consumers generally pay tips to individual workers in the
service industry, not to firms (whether partnered with the employer
or otherwise) for lending them money. Providers should exercise care
in ensuring that the language they use here is not deceptive.
\45\ See supra note 35.
\46\ See Cal. Dep't of Fin. Prot. & Innovation, supra note 30,
at 1, 7.
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As explained above, a payment may be ``imposed directly or
indirectly by the creditor'' and hence may be part of the finance
charge even if the credit can be obtained without making the
payment.\47\ Under certain circumstances, ``tips'' and similarly styled
consumer payments may be ``imposed directly or indirectly by the
creditor'' such that they are part of the finance charge. A provider
using its authority--real or implied--to exact a ``tip'' from a
consumer in connection with an earned wage transaction has ``imposed''
the resulting consumer payment.\48\ Relevant considerations when
determining whether a ``tip'' or similar payment is imposed by the
creditor as part of the finance charge include but are not limited to:
soliciting a ``tip'' before or at the time of a credit extension
(rather than some significant time after it); labeling the solicited
payment with a term (such as ``tip'') that carries an expectation that
the consumer will make such a payment in the normal course; setting
default ``tip'' amounts or otherwise making it practically more
difficult for the consumer to avoid leaving a ``tip''; suggesting
``tip'' amounts or percentages to the consumer; repeatedly soliciting
``tips,'' even in the course of a single transaction; and stating or
otherwise implying, directly or indirectly, truthfully or otherwise,
that ``tipping'' may impact subsequent access to or use of the
product.\49\
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\47\ As explained above, payments that are not required as a
condition of the credit but are nonetheless incident to it can be
``imposed directly or indirectly by the creditor.'' Including only
``conditions of'' the extension of credit in the finance charge
would improperly read ``incident to'' out of Regulation Z's
definition of finance charge, and a creditor can ``impose'' a cost
on a consumer even if the cost is not required for the extension of
credit.
\48\ A consumer's reasonable understanding that a provider
expects a ``tip'' in connection with a transaction is evidence that
the provider exacts it as if by authority. This kind of reasonable
understanding does not depend on whether ``tipping'' impacts the
supply of credit to the consumer now or in the future.
\49\ The presence or absence of one or all of these
considerations may not be determinative. The importance and
relevance of these and other considerations will vary in the context
of a particular product and how it is offered or provided to
consumers.
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III. Regulatory Matters
This is a proposed interpretive rule issued under the CFPB's
authority to interpret TILA and Regulation Z, including under section
1022(b)(1) of the Consumer Financial Protection Act of 2010, which
authorizes guidance as may be necessary or appropriate to enable the
CFPB to administer and carry out the purposes and objectives of Federal
consumer financial laws.\50\ While not required under the
Administrative Procedure Act (APA), the CFPB is soliciting comments on
the proposal and may make revisions when it issues a final interpretive
rule as appropriate in light of feedback received.
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\50\ 12 U.S.C. 5512(b)(1).
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By operation of TILA section 130(f), no provision of TILA sections
130, 108(b), 108(c), 108(e), or section 112 imposing any liability
would apply to any act done or omitted in good faith in conformity with
the final interpretive rule, notwithstanding that after such act or
omission has occurred, the final interpretive rule is amended,
rescinded, or determined by judicial or other authority to be invalid
for any reason.\51\
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\51\ 15 U.S.C. 1640(f).
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The CFPB has determined that this proposed interpretive rule, if
finalized, would not impose any new or revise any existing
recordkeeping, reporting, or disclosure requirements on covered
entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.\52\
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\52\ 44 U.S.C. 3501-3521.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-16827 Filed 7-30-24; 8:45 am]
BILLING CODE 4810-AM-P
