Weekly Fintech Focus
- California DFPI enters into MOUs with earned wage access companies to observe these business models before regulating the industry directly.
- CFPB acting director emphasizes the need for companies to respond to consumer complaints.
California DFPI Enters MOUs with Multiple Earned Wage Access Companies
California’s Department of Financial Protection and Innovation (DFPI) has continued to expand its jurisdiction over financial service providers under the aegis of the California Consumer Financial Protection Law (CCFPL) (which became effective on January 1, 2021). Notably, DFPI is working quickly to monitor and possibly regulate entities and industries that formerly fell outside of its jurisdiction. To this end, the DFPI launched an investigation into multiple debt collectors, and on January 27, announced it has signed memorandums of understanding (MOUs) with five earned wage access (EWA) companies, “the first agreements of their kind between the fintechs and a state regulator.”
EWA products provide employees with access to earned but as yet unpaid wages. The companies under the MOUs offer multiple models of EWA products, including companies that contract directly with employers and those that are in relationship with the consumers regardless of the consumer’s place of employment. Further, some of the companies do not appear to offer traditional EWA products, and instead offer small on-demand cash advances.
PayActiv, Inc. is one of the companies that entered into an MOU with DFPI. Even though the Consumer Financial Protection Bureau (CFPB) provided PayActiv with an approval order for its EWA program under the CFPB’s Compliance Assistance Sandbox Policy (discussed on our blog here). The CFPB order confirmed that PayActiv’s EWA program described in the order did not involve the offering or extension of “credit” as defined by TILA and Regulation Z. The approval order followed an advisory opinion issued by the CFPB in December 2020 dealing with EWA products in which the CFPB concluded that an EWA program with the characteristics set forth in the opinion did not involve the offering or extension of “credit” within the scope of TILA and Regulation Z.
In contrast to the CFPB’s interpretation of “credit,” the DFPI’s definition of “covered persons” who are offering a “financial product or service” or “credit” is broader than the CFPB’s definition. Given the CCFPL’s broad interpretation of the definition of “debt,” companies offering other products not considered to be “credit” under TILA and Regulation Z could still face DFPI scrutiny. The MOUs clearly indicate the DFPI intends to exercise its jurisdiction under the CCFPL even where the CFPB has declined to assert jurisdiction.
The DFPI offered the opportunity to the EWA companies “to continue operating in California, in advance of possible registration under the [CCFPL]” as an incentive for the EWAs to sign the MOUs. The MOUs establish a quarterly reporting requirement for the EWA companies to provide data on several metrics of their business, including information relating to changes to consumer contracts, fees to consumers, consumer complaints, the average number of advances per month, duration before consumer payback, and the number of consumers making no repayment, partial repayments, or requesting cancellations or deferrals. The companies also agreed to follow industry best practices and disclose any assessed fees.
CFPB Acting Director Turns Focus to Company Responses to Consumer Complaints
Last week we discussed a letter Acting Director of the CFPB David Uejio wrote to staff outlining his priorities (discussed on our blog here), including (1) relief for consumers facing hardship due to COVID-19 and the related economic crisis and (2) racial equity. On February 10, 2021, he wrote another letter to staff of the CFPB’s Division of Consumer Education and External Affairs to provide guidance on how the division can work to advance his priorities. To drive his agenda forward, he urged the division to quickly work to ensure that the agency and companies respond and engage with consumer complaints. He emphasized that disparities in complaint response have disproportionally affected minority communities. As part of the remedy, he has directed the agency to prepare a report on companies that have a poor track record of responding quickly or equitably to consumer complaints. Additionally, he has directed the agency to prioritize those consumers whose financial lives are most precarious, with a focus on struggling homeowners at risk of foreclosure or renters at risk of eviction.