Decoding the CFPB's puzzling position on earned wage access programs

Samuel Corum/Bloomberg

In November 2023, the Consumer Financial Protection Bureau took the unusual step of filing a comment letter for a state-level rulemaking in California regarding earned wage access, in which the CFPB urged California regulators to move forward with proposed regulations that would effectively deem all EWA services to constitute the offering of "credit." It was unusual because federal regulators rarely take steps to attempt to publicly influence a state-level rulemaking.

The CFPB's action raises the question: Why did the CFPB choose to weigh in on this rulemaking when all 50 states pass their own laws and make regulatory decisions on a regular basis without input from federal regulators like the CFPB? Some of these laws and regulatory decisions are consistent with federal law, and some are not. It is interesting to note that the CFPB remained silent when EWA laws were passed in Nevada and Missouri. This was also the case when the attorneys general in Arizona and Montana issued opinions that EWA products are not credit products.

There is an old saying, "Where you sit is where you stand." It's clear where the CFPB stands with respect to encouraging states to consider EWA products as credit, even when their own guidance currently contradicts that position. Let me explain.

While I cannot speak to what factors influenced the CFPB to file a comment, I can say that if you were new to issues related to EWA, and you read the CFPB's letter to California, you might have been led to believe that all EWA providers are acting nefariously, as opposed to giving consumers a pathway to a different method for receiving their own earned, but not yet paid, wages.

The CFPB wants the public to forget that their own EWA advisory opinion includes a discussion that goes to the heart of the service — employees have a right to access the money they have earned. The advisory opinion includes a well-reasoned analysis of EWA products, featuring phrases such as "credit has not been extended because the consumer is, in effect, only using the consumer's own money," and "an employee is, in effect, only using the [employee's] own money."  I agree with the CFPB's analysis. However, by filing their comment, the CFPB is essentially saying it no longer does. The CFPB's letter to California thus is counter to its own public guidance on EWA products and asks the California regulators, and other readers to simply believe the CFPB's public interpretation that credit laws may or may not apply.

The Innovative Payments Association has been working on issues related to EWA for more than four years, and I have had the great fortune to have had the opportunity to work with many EWA providers, testify before Congress and write several opinion pieces outlining the benefits of EWA.

At times, people feel a sense of uncertainty when new realities challenge old paradigms and beliefs, and such is the case with EWA. Some may feel uncomfortable because EWA is changing how employees interact with their employers. EWA is growing in popularity and is attractive to consumers because it is exactly what it proclaims to be. And the CFPB has acknowledged this fact in writing.

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EWA providers are giving wage earners something they rarely have: power. Power to control when they get paid and gain access to their earned wages when they need it. To this point, the CFPB wrote, "EWA products seek to address the lag between consumers' hours worked and receipt of their paychecks by facilitating advance access to earned but as yet unpaid wages." 

Critics argue EWA is a credit product. The answer again lies with the CFPB's own words. If the CFPB truly believes that employees have a right to the money they have earned, and that right is protected by state and federal law, it cannot be diminished, even if their employer goes out of business or files for bankruptcy.

One of the basic tenets in the law is the concept of ownership. A true owner has rights to an asset that exceeds the rights of all others. For example, if your car is stolen, the owner's rights are not diminished, even if they don't have possession of the vehicle.

Accordingly, it is impossible for me to loan something to you that is already yours. Credit is borrowing something you do not have on the promise you will pay it back. Wages cannot become credit simply because an EWA provider helps an employee access those funds ahead of an arbitrary date.

Decades of court cases and legislation have made it clear that wages earned are an employee's property by right and law, whether those wages are paid out on Tuesday or Friday. The timing of payday is irrelevant. If timing did impact ownership, every waiter, bartender and cab driver would have to forgo being paid on a daily basis. Ironically, converting wages into credit reduces consumer options, especially low- and moderate-income workers who may not have easy access to credit.

The CFPB says it supports consumer choice, but thus far it appears that the only group allowed to freely exercise their options when it comes to when a worker gets paid is the employer. The CFPB shouldn't second guess the American worker. They should let employees decide when and how they want to get paid.