Woodstock Institute appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (CFPB) Proposed Interpretive Rule regarding Earned Wage Access (EWA) products. EWA is a relatively new product on the market whereby a consumer can access a portion of pay that they’ve earned for hours worked before their payday.
We are concerned that the proposed interpretive rule classifies EWA as a consumer loan based on a endorses an overly broad definition of “finance charges.” The rule treats expedited fees and “tips” associated with EWA products as automatically and inherently finance charges under the Truth in Lending Act (TILA), but such a classification should instead hinge on whether not these charges are truly voluntary. This would be a higher-touch and more time- and analysis-intensive approach to regulation, but we believe it would better serve consumers.
The rule implies that any fee paid voluntarily by a consumer in connection with obtaining a loan could be seen as substantially connected to that specific extension of credit, making it a finance charge. This could include fees for optional services, like expedited delivery of a physical credit card or customizable card designs – things for which a designation as a finance charge is clearly inappropriate.
Furthermore, by reducing access to EWA, the proposed rule could have the unintended consequence of driving consumers to products that are known to be ruinous to a consumer’s finances and overall wellbeing. In The Predatory Loan Prevention Act is Working, we found that access to cash via EarnIn’s EWA reduced people’s use of high-cost loans, such as pawn loans and payday loans, by 62%.
Consumers need safe and affordable options to address short-term cash needs – including robust options that do not involve credit, since additional debt is not always the best solution. We believe that safe and responsible EWA products have a role to play in that landscape, with proper regulation, and should be part of a suite of credit products and financial strategies to serve consumers.
Woodstock deeply values the CFPB’s work and crucial role in protecting consumers across the country. While we understand that we’ve taken a different position on this issue than the Bureau and many of our advocacy partners, we hope our comments will be taken in the spirit of cooperation and support that they were intended. For any questions or further information, please contact Jane Doyle, Senior Regulatory Policy Associate at hello@woodstockinst.org.
To learn more, download the full letter below.
