The CFPB issued a "compliance assistance sandbox" ("CAS") approval to PayActiv, Inc. ("PayActiv"). The relief provides the company with a time limited safe harbor from potential liability under the Truth in Lending Act ("TILA") in connection with the company's "earned wage access products" ("EWA").

PayActiv is a Public Benefit Corporation and Certified B-Corp, that provides "financial wellness services" including "on-demand access to already earned but unpaid wages, as well as savings and budgeting, bill payment and financial health measurement tools." PayActiv's earned wage access products are a part of its "financial technology service that allows users to receive on demand a portion of their wages for hours they have already worked but not yet been paid for by their employer."

The "compliance assistance sandbox" policy, finalized by the CFPB in 2019, provides a safe harbor to applicants "for testing innovative products and services for a limited period of time while sharing data with the Bureau."

As described in PayActiv's CAS application, the company will lend to employees against their earned but unpaid wages in exchange for a "factored future received wage payment" ("FFRWP"), thereby purchasing an employee's right to the receivable and assuming the risk associated with the employer's failure to pay. The company offers two program structures:

  • "PayActiv Access Freedom," which offers the service free of charge if the employee direct-deposits his or her wages on a PayActiv prepaid or payroll card; and
  • "PayActiv Access Choice," which charges a $1 per day fee for access to EWA.

PayActiv requested CFPB approval that its EWA products are not credit, subject to the TILA. PayActiv asserted that its products are not credit because (i) its EWA products do not charge interest and (ii) the FFRWP is a non-recourse factoring transaction, which is not a credit transaction. Referring to "PayActiv Access Freedom," the company stated that "there can be no dispute that free, early access to one's wages is not credit" and, with regard to "PayActiv Access Choice," that the company does charge a nominal $1 fee. The company also stated that "the fee alone does not render EWA a credit product." Furthermore, the company argued, its EWA product does not share the hallmarks of credit as defined by TILA's Regulation Z.

The safe harbor is effective for two years.

Commentary

This seems a nice example of how the regulators might work with a private technology firm to reduce the regulatory risks of a product that on its face seems to provide a meaningful benefit to low income workers who would otherwise have to wait a couple of weeks for their paychecks. On the other hand, it could put a dent in payday songs, which would be a loss.

Primary Sources

  1. CFPB Press Release: Consumer Financial Protection Bureau Issues an Approval Order to Facilitate Employee Access to Earned but Unpaid Wages
  2. CFPB CAS Approval: PayActiv, Inc.
  3. CFPB CAS Approval Application: PayActiv, Inc.

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