Why the CFPB's Latest Earned Wage Advance Rule Is Misguided
The U.S. Consumer Financial Protection Bureau (CFPB) recently proposed regulating earned wage advance (EWA) products under traditional credit rules (TILA). Brian Tate, CEO of the industry group Innovative Payments Association, argues that the rule would stifle competition, increase costs for workers accessing their earned wages, and could, due to credit checks, shut out the low-income groups most in need, pushing them back toward payday loans.
In the current financial regulatory landscape, no institution better exemplifies the adage "if all you have is a hammer, everything looks like a nail" than the U.S. Consumer Financial Protection Bureau (CFPB). Unfortunately, a recent CFPB directive has swung its heavy hammer at the very people the agency's leadership claims to protect—America's low- and middle-income working class.
For over a decade, American workers have benefited from an innovative financial service known as Earned Wage Access (EWA). This service allows low- and middle-income families to access a portion of their already-earned wages when needed, without having to wait two weeks or a month as employers typically require. During the COVID-19 pandemic, the growth of such programs accelerated significantly. Today, more than 55 million Americans use EWA to access their earned income, with many using the service at no cost. EWA costs far less than payday loans, requires no credit check, and involves no debt collection.
As EWA has grown in popularity among workers, more companies have entered the market, and regulators under both Democratic and Republican administrations have recognized it as a cheaper, low-cost alternative to expensive credit products like payday loans. Low- and middle-income American workers have benefited precisely from this combination of financial innovation and sensible bipartisan regulation. Consumer complaints about EWA arevirtually nonexistent. These data points should point to a financial success story, yet the CFPB has chosen this moment to intervene.
Most reasonable people would agree that wages are "earned," while credit is "money borrowed that you do not yet own." However, for years, some consumer groups have not advocated for a regulatory framework that recognizes EWA's uniqueness; instead, they have lobbied state and federal regulators to classify EWA as a credit product. If so classified, EWA would be subject to the Truth in Lending Act (TILA)—a decades-old law governing traditional credit products.
Last month, the CFPB granted these groups their wish,issuing a proposalto regulate all earned wage access products in the same manner as mortgages and auto loans. In short, at the request of these consumer groups, the CFPB has forced EWA into a regulatory framework that fits its worldview rather than one that benefits consumers.
In 2020, the CFPB issued anadvisory opinionthat provided a clear TILA exemption safe harbor for certain EWA products. At that time, the CFPB stated that "some efforts to provide consumers with access to accrued wages may not constitute credit at all," and that "there are substantial and reasonable arguments that the transaction does not involve 'credit' because the employee may have no liability," or that EWA "is designed to provide access to the consumer's own funds." The market responded to the agency's views by developing a wide variety of EWA products. Some were covered by the safe harbor, some were not, but all were superior to the alternative—payday loans—for consumers.
The CFPB's new TILA-based regulatory path for EWA will harm consumers in several ways. First, it will stifle competition and reduce innovation. The new rule will create a market dominated by large EWA providers who can afford compliance costs, squeezing out other players. It will also erect barriers to entry for new entrants—those who might have new ideas or technologies that could deliver the same services to EWA users at lower cost.
Second, it will increase costs for workers who need access to their earned wages. Allowing people to access their own earned funds seems like an obvious proposition. While many products offer funds for free, even the CFPB's own statistics show that when workers do pay, it costs about $3 for every $106 of earned income accessed. This is still far less than what payday loans charge (see Financial Health Network research）。
Finally, and most concerning, the new rule could directly deprive the workers who need EWA most of access to the service. Low- and middle-income individuals use EWA products because they lack credit or savings when emergencies arise. If EWA is now classified as a credit product, workers will have to pass a credit check to qualify for EWA. Those who initially lacked access to credit will likely also be denied EWA. The CFPB's new rule would inadvertently push American workers back into the arms of payday lenders.
As for EWA providers and advocates such as the Innovative Payments Association, they have consistently argued for new regulations specifically designed for EWA to protect consumers while leaving room for market competition and innovation. The CFPB's recent actions will achieve neither of these goals.