The Consumer Financial Protection Bureau (CFPB) have released a new advisory opinion determining that earned wage access products are not an offer of “credit” under Regulation Z.
This is because consumers are only able to access income they are owed.
The CFPB also provided a number of conditions that an earned wage access provider must meet. These conditions affect Fintechs because they impact pricing, distribution, and recovering funds.
Is this a positive development on earned wage access?
This development on earned wage access is positive for a few reasons.
Firstly, regulators want to encourage more innovation in earned wage access products in tandem with cracking down on predatory consumer lending.
Another advantage is that earned wage access benefits can scale without a lending license. The CFPB’s opinion carries weight with state regulators that have argued for earned wage access services to meet stricter lending regulations.
For Team Atomic, it confirms our hypothesis that payroll can unlock new financial lifelines for consumers. Our customers are already innovating in the earned wage access space in-line with the CFPB guidance.
How does this impact Fintechs?
The CFPB’s opinion on earned wage access impacts Fintechs in a number of ways.
- Distribution: Earned wage access providers must contract with employers to offer their services. However, at this point we don’t know how this impacts B2C providers that offer services directly to employees.
- Pricing: Companies providing earned wage access must clearly explain to employees that they will not charge any fees for services. This will impact companies using ‘creative’ tipping models and going B2C.
- Recovering funds: Providers can only recover earned wage access funds through an employer-facilitated payroll deduction. Companies recovering funds directly from the employee’s bank account will be affected by this.
- Failed recoveries: In the event of non-payment, providers will not engage in any debt collection activities or report to the credit bureaus.
Wait, payroll deductions can fail?
Payroll deductions may fail due to a technical error such as an API malfunction or an administrative mistake. Earned wage access providers only have two attempts at recovery, so having the right infrastructure connection to payroll matters.
At Atomic, we’re thrilled to already enable a number of our customers with these capabilities and we’re excited to be partnering with many more innovative companies to use Atomic APIs as a frictionless solution.
