Access to earned wages: CFPB, upcoming national regulations

Hello and welcome to Protocol Fintech. This Monday: Access to earned wages is criticized, Capital One is shopping for fintechs and Zelle scams find a simple explanation.

out of the chain

For sale: a neobank, never used. American Challenger and Patriot National Bank called off their merger in the latest sign of trouble in the neobanking industry. American Challenger is now selling its cost-effective technology and a catchy brand name, Cache.

—Owen Thomas (E-mail | Twitter)

quick money

Federal and state regulators are taking a closer look at how to regulate a rapidly growing area of ​​fintech, access to earned wages. These products allow employees to get the salary they have earned before their regular payday. As the industry has grown, the debate over whether the products should be considered extensions of credit and regulated accordingly has grown.

The Consumer Financial Protection Bureau is on the case. Hidden in a recent announcement revoking a sandbox letter for EWA provider Payactiv was a warning that the agency would soon “issue new guidelines.”

  • The termination of Payactiv’s sandbox letter, which provided the company with regulatory protection from major lending rules, came at the company’s request. The company said it wanted to make changes to its business strategy without incurring a lengthy review by the CFPB, although the CFPB has previously told Payactiv that it is considering ending the letter following statements public statements of the company “erroneously suggesting CFPB approval.” Press release and a couple of Blog posts by Payactiv referencing the CFPB now throws errors or redirects to the Payactiv homepage.
  • Payactiv said it continues to pursue a “collaborative relationship” with the CFPB. The CFPB did not comment on its draft additional guidance.

Industry officials say payroll products are a cheaper alternative to payday loans. Some employers even have see faster compensation options as a recruiting tool.

  • Wage products are increasing rapidly. Research firm Aite-Novarica Group estimated that industry vendors moved about $9.5 billion in compensation in 2020. While the company hasn’t released updated numbers, the company says that the number has increased significantly since then.
  • One November 2020 advisory opinion of the CFPB said that employer-based earned wage access programs are not considered loans or credits so long as “the employee makes no payment, voluntary or otherwise, to access the funds of the CFPB. ‘EWA’, among other criteria. Before that, Richard Cordray, then director of the CFPB exempted employer-based earned wage access products from a 2016 payday loan rule.
  • Consumer groups asked the CFPB to examine the 2020 notice from last fall, claiming that its definition of credit under the Truth in Lending Act could be used to justify classifying a broader range of EWA products as non-lending. The groups fear the fees will hurt users.

States are also watching. Since early access to wages involves pay, state wage and hour laws could determine the products offered.

  • New Jersey, New York, Caroline from the south, Georgia, Utah, Nevada and North Carolina each considered regulatory frameworks for the products.
  • Some within the industry have offered support for California’s approach. In February, the state’s Department of Financial Protection and Innovation issued a statement that employer-based EWA provider FlexWage is not subject to licensing under its lending laws and deferred deposits. The company requested the legal review.
  • The review set two standards to guide the designation that the product is not a loan: employers provided funds for amounts that did not exceed earned but unpaid wages, and the fees charged by FlexWage did not suggest that the product was designed to escape California loan laws. The regulator has also opened a rule-making process for industry.

New regulations may not be a bad thing for the industry. “The main problem, whichever side you’re on, is that there’s a lack of clarity,” said Moorari Shah, partner at law firm Sheppard Mullin. “Regulators, industry, employers all recognize it: it’s unclear how this should be handled.”

—Ryan Defenbaugh (E-mail | Twitter) and Veronica Irwin (E-mail | Twitter)


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on the money

Politicians can once again accept crypto in California. The State’s Fair Political Practices Commission voted unanimously repeal a ban on crypto donations and adopt new rules on how to accept funds.

On protocol: Sam Bankman-Fried has a plan to partially bail out Voyager customers. But Voyager’s lawyers call it a “low bid.”

Zipmex resumed withdrawals. The crypto exchange survey a withdrawal block after about 48 hours, but still limits deposits, transfers and transactions.

Capital One is doing fintech discount shopping. Asked by analysts about a possible fintech acquisition, CEO Rich Fairbank said on the company’s earnings call that “as prices have crashed in this market, we continue to watch the market carefully.” The company is an “ideal buyer for fintechs”, he said.

Investment bank Moelis & Co. has crypto plans. Moelis is start a group to focus on global blockchain transactions.

Tesla recorded a $170 million impairment charge on its bitcoin holdings. The electric car maker also posted gains of $64 million on some sales of its bitcoin holdings, the company said in its 10-Q filing with the SEC on Monday.


Zelle attracts scammers because of the Willie Sutton Effect. “They’re drawn to these apps like moths to a flame because there’s so much money flowing through them and the transfers are happening so quickly,” Matt Schulz, chief credit analyst at LendingTree, Told CNBC.


Visa and Fiserv both have earnings calls on Tuesday. Visas PES the forecast is $1.74, down from $1.49 in the same quarter last year. Fiserv has a PES forecast of $1.54, down from $1.37.

The Senate Banking, Housing, and Urban Affairs Committee will hold a hearing on discriminatory banking practices on Tuesday. The audience is titled “Fairness in Financial Services: Racism and Discrimination in Banking” and will feature witnesses from the Center for Responsible Lending and the Center for Equal Opportunity as well as NYU Professor Jacob Faber.

Shopify also has an earnings call on Wednesday. Stores PES the estimate fell to -$0.1, after reported EPS of $0.15 for the same quarter last year.

The Senate Banking Committee will also have a audience on crypto scams and other risks on Thursday. The Federal Trade Commission reported earlier this year that consumers lost more than $1 billion between January 2021 and March 2022. And a CertiK report this month estimated that more than $2 billion was lost due to fraud in DeFi and Web3 projects internationally in 2022 alone.


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