Weekly Fintech Focus

  • The CFPB plans to review CARD Act Rules.
  • The Treasury Department proposes clarifications to regulatory treatment of Earned Wage Access programs.

CFPB Director Chopra Plans to Review CARD Act Rules

The day after a tough hearing with the Senate Banking Committee, on April 27, 2022, the House Financial Services Committee held a hearing in which Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra spoke with lawmakers about his plans to explore whether the CFPB should revisit and potentially revise previously written rules to implement the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act).

These rules cover various consumer protection requirements and restrictions such as limits on interest rate increases and certain fees. Particularly, Chopra’s comments suggest that the CFPB could pursue tougher restrictions on issuer fees as part of a broader effort to manage what he refers to as “junk fees.” Chopra did not provide a specific definition on what fees the agency may scrutinize, but his responses to inquiries from lawmakers indicates that it could cover a broad array of charges that are imposed on bank accounts, credit cards, and other financial products, such as late fees and other fees that do not compensate for a specific service.

Chopra believes that such fees are excessive and poorly disclosed, but he did note that inter-exchange fees and overdraft fees would not be a priority under this review.

In addition to a focus on said junk fees, Chopra discussed the idea of the CFPB potentially looking to ban medical debt from consumer credit reports and emphasized that the CFPB is “heavily focused” on the anticipated rule that would address third-party access to consumers’ financial data. Chopra expects to see progress on such rulemaking within a year.

Treasury Department Proposes Clarification of “Earned Wage Access” Treatment

Earlier this year, the Treasury Department proposed several amendments to the Internal Revenue Code to address issues that arise when employers and third-party payors allow employees to receive payment of earned wages before their regularly scheduled pay dates. These arrangements, referred to as “on-demand pay” or “earned wage access” arrangements, have proven to be increasingly popular in recent years.

Under current law, employees with access to an on-demand pay arrangement may be in constant “constructive receipt” of their wages as they are earned (i.e., on a daily basis). This has led to uncertainty over whether employers should or must reconfigure their payroll systems to make payroll deposits and withhold and pay employment taxes on earned wages on a daily basis. According to the Treasury Department, some employers and third-party payors have treated the arrangement as a loan, and others have avoided the “constructive receipt” issue entirely to avoid the burden of reconfiguring payroll systems.

The Treasury Department proposed amendments to the Internal Revenue Code to provide clarity on the issue, namely by (1) providing that the payroll period for such arrangements be treated as a weekly payroll period, (2) standardizing the definition of such arrangements, and (3) expressly clarifying that the arrangements are not loans. 

The proposed amendments, if enacted, would be effective after December 31. Whether the amendments will be enacted is unclear. The amendments were proposed in the Treasury’s General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals (commonly referred to as the “Green Book”), which explains the revenue proposals in the president’s proposed Fiscal Year 2023 Budget. Such amendments would require congressional action to be implemented. 

Absent such action, the proposal may be better viewed as the Treasury Department’s (non-binding) position in a long-simmering debate that the arrangements should not be considered “extensions of credit” as proposed by the CFPB, Regulation Z, and, most recently, state legislation.