The CFPB ruled that the EWA program isn’t credit and thus doesn’t have to abide by the federal Truth in Lending Act (TILA) and Regulation Z rules, which govern creditors, the release stated.
The CFPB noted that the Payactiv EWA doesn’t create debt because “the accrued cash value of an employee’s earned but unpaid wages is the employee’s own money,” according to the release.
Payactiv CEO and Co-Founder Safwan Shah called the approval a “watershed moment.”
“We are very proud that the CFPB has recognized this important innovation and validated Payactiv’s pioneering work in creating low or no-cost employer-sponsored access to earned wages,” Shah said in the release. “Employers can take comfort in knowing that Payactiv continues to be the leader in responsible EWA for employees.”
The approval order from the CFPB noted that the EWA program is innovative because it helps “consumers to bridge the gap between paychecks,” despite differing from the normal programs the CFPB would consider to be credit.
“Payactiv recovers corresponding EWA amounts via employer-facilitated payroll deductions” and doesn’t “seek repayment from an employee directly or through a payment authorization from the employee’s account,” the order stated.
The CFPB recently clarified its position on EWA programs and said they weren’t considered to be extensions of credit.
Earned wage or on-demand payroll access is typically used by companies to give workers access to their pay before the scheduled payday. Solutions can include variations on payday loans, sliding fees, straight fee arrangements or interest payments, PYMNTS reported.
The CFPB cited data from the Bureau of Labor Statistics that showed some two-thirds of U.S. private businesses use biweekly, semimonthly or monthly pay periods. But “the interval of time between hours worked and receiving a paycheck can contribute to employees’ financial distress.”