[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Proposed Rules]
[Pages 61358-61363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16827]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 89, No. 147 / Wednesday, July 31, 2024 / 
Proposed Rules  

[[Page 61358]]



CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026

[Docket No. CFPB-2024-0032]


Truth in Lending (Regulation Z); Consumer Credit Offered to 
Borrowers in Advance of Expected Receipt of Compensation for Work

AGENCY: Consumer Financial Protection Bureau.

ACTION: Notice of proposed interpretive rule; request for comment.

-----------------------------------------------------------------------

SUMMARY: The Consumer Financial Protection Bureau (CFPB) is charged 
with promoting competition and innovation in consumer financial 
products and services. After careful study of emerging offerings in the 
paycheck advance marketplace, including those marketed as ``earned wage 
advances'' and ``earned wage access,'' the CFPB is proposing this 
interpretive rule to help market participants determine when certain 
existing requirements under Federal law are triggered. The proposed 
interpretive rule would also address certain costs that are in 
substantial connection with extensions of such credit, such as 
expedited delivery fees and costs marketed as ``tips.''

DATES: Comments must be received by August 30, 2024.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2024-
0032, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. 
Include Docket No. CFPB-2024-0032 in the subject line of the message.
     Mail/Hand Delivery/Courier: Comment Intake--2024 Paycheck 
Advance Interpretive Rule, c/o Legal Division Docket Manager, Consumer 
Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. 
Because paper mail in the Washington, DC area and at the CFPB is 
subject to delay, commenters are encouraged to submit comments 
electronically.
    Instructions: The CFPB encourages the early submission of comments. 
All submissions must include the document title and docket number. In 
general, all comments received will be posted without change to https://www.regulations.gov. All submissions, including attachments and other 
supporting materials, will become part of the public record and subject 
to public disclosure. Proprietary information or sensitive personal 
information, such as account numbers or Social Security numbers, or 
names of other individuals, should not be included. Submissions will 
not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    One major source of demand for consumer credit is derived from the 
mismatch of when American workers receive compensation for their labor 
and when they incur expenses. While there have long been sources of 
credit for consumers to pay expenses in advance of receiving their 
compensation, there are a number of new offerings that seek to provide 
additional choices for consumers.
    Instead of being paid daily or upfront, American workers generally 
provide services before employers pay for those services some time 
later--typically on a biweekly or semi-monthly wage cycle.\1\ Employers 
have a strong incentive to delay payment, since these delays reduce 
working capital needs. Nearly three-quarters of non-farm payroll 
employees remain paid biweekly or even less frequently, and the 
remainder are generally paid their wages weekly. To address liquidity 
challenges, many consumers therefore turn to third-party credit 
products, such as payday loans, personal installment loans, and credit 
cards. In recent years, American consumers have significantly expanded 
their use of products sometimes marketed as ``earned wage access'' or 
``earned wage advance.'' \2\ As these paycheck advance products 
generally have features that make them subject to the CFPB's 
jurisdiction, the CFPB has sought to understand these and other 
products, particularly those offered online, by engaging in ongoing 
monitoring of the market, including, for example, collecting and 
analyzing data, engaging with stakeholders (e.g., market participants, 
consumer groups, and States), tracking and studying market 
developments, and conducting market research, among other things.
---------------------------------------------------------------------------

    \1\ While the terms ``employer'' and ``employee'' are used 
throughout, the proposed interpretive rule would apply more broadly 
to situations where consumers receive payment for work performed.
    \2\ A CFPB report describes rapid recent growth in one part of 
this developing market. See CFPB, Developments in the Paycheck 
Advance Market, at 3 (July 2024) (hereinafter 2024 Paycheck Advance 
Report).
---------------------------------------------------------------------------

    While many of these products have similarities to payday loans, 
there are important distinctions. The CFPB has found that there are two 
emerging models of earned wage products: employer-partnered and direct-
to-consumer.
    For ``employer-partnered'' products, providers contract with 
employers to offer funds in amounts not exceeding accrued wages. Those 
funds are recovered via one or more payroll deductions, lowering the 
consumer's paychecks accordingly, with other recourse options generally 
unavailable to the third-party provider. In contrast, ``direct-to-
consumer'' products provide funds to employees in amounts that they 
estimate to be below accrued wages; funds are then recovered via 
automated withdrawal from the consumer's bank account,\3\ and generally 
without limit to the provider's ability to seek further recourse as 
necessary.\4\
---------------------------------------------------------------------------

    \3\ This includes, without limitation, e.g., prepaid and payroll 
card accounts.
    \4\ As described, direct-to-consumer products lie outside the 
scope of the ``wage advance'' (12 CFR 1041.3(d)(7)) and ``no cost 
advance'' (12 CFR 1041.3(d)(8)) exclusions from the CFPB's 2017 
Payday Rule. Employer-partnered products, however, may be (but are 
not necessarily) within the scope of one exclusion or both, with 
their revenue model particularly relevant to that determination. See 
12 CFR 1041.3(d)(7)(ii)(A), (d)(8).
---------------------------------------------------------------------------

    Some of the significant differences between these two types of 
earned wage products, however, are starting to erode.

[[Page 61359]]

For example, some direct-to-consumer providers are now connecting 
directly to payroll records and recouping funds from payroll 
deductions, and ongoing State legal developments may cause them to 
limit their recourse options as well.\5\
---------------------------------------------------------------------------

    \5\ See 2024 Paycheck Advance Report, supra note 2, at 4 n.7. 
Several recently enacted State laws prohibit providers of earned 
wage products, including direct-to-consumer products, from 
compelling consumer repayment of earned wage amounts and fees 
through various means, such as lawsuits or third-party debt 
collection. See, e.g., 24 Mo. Rev. Stat. sec. 361.749(5)(6); Wis. 
Stat. sec. 203.04(2)(f); cf. Montana Op. Att'y Gen., Vol. 59, Op. 2 
(Dec. 22, 2023) (finding earned wage products do not meet the state 
law definitions of ``consumer loan'' or ``deferred deposit loan'' 
when they are ``fully non-recourse,'' among other criteria).
---------------------------------------------------------------------------

    Before the CFPB's market monitoring of these products intensified, 
the CFPB issued an advisory opinion in November 2020,\6\ that described 
how one particular type of earned wage product does not involve the 
offering or extension of ``credit'' as that term is defined in 
Regulation Z (12 CFR part 1026) and the Truth in Lending Act (TILA).\7\ 
The opinion explained that an earned wage product is not TILA or 
Regulation Z credit if it meets all of several identified conditions, 
including: providing the consumer with no more than the amount of 
accrued wages earned; provision by a third party fully integrated with 
the employer; no consumer payment, voluntary or otherwise, beyond 
recovery of paid amounts via a payroll deduction from the next 
paycheck, and no other recourse or collection activity of any kind; and 
no underwriting or credit reporting.
---------------------------------------------------------------------------

    \6\ CFPB, Truth in Lending (Regulation Z); Earned Wage Access 
Programs (Nov. 2020), https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinion_earned-wage-access_2020-11.pdf (hereinafter 
2020 Advisory Opinion).
    \7\ Regulation Z defines credit at Sec.  1026.2(a)(14).
---------------------------------------------------------------------------

    The 2020 advisory opinion was silent about whether earned wage 
products that do not meet all of these conditions are credit under TILA 
and Regulation Z.\8\ The opinion did not address what counts under TILA 
and Regulation Z as a finance charge with respect to any such product 
that is credit. As the CFPB has acknowledged, the 2020 advisory opinion 
appears to have caused significant regulatory uncertainty.\9\
---------------------------------------------------------------------------

    \8\ The opinion stated that it had no application to such 
products. See 2020 Advisory Opinion, supra note 6, at 3-7.
    \9\ See, e.g., Nat'l Consumer L. Ctr., Ctr. for Responsible 
Lending, Concern About Prior Leadership's Finding that Certain 
Earned Wage Access Products Are Not ``Credit'' Under TILA, Nat'l 
Consumer L. Ctr., Ctr. for Responsible Lending, at 36-37 (Oct. 12, 
2021), https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/crl-nclc-ewa-letter-to-cfpb-oct2021.pdf 
(noting ``chaos'' and ``further questions'' caused by advisory 
opinions); U.S. Gov't Accountability Off., GAO-23-105536, Financial 
Technology: Products Have Benefits and Risks to Underserved 
Consumers, and Regulatory Clarity is Needed, at 36-37 (Mar. 2023), 
https://www.gao.gov/assets/gao-23-105536.pdf (citing industry 
requests for clarification). The CFPB has acknowledged the need for 
clarification in this area. See, e.g., Letter from CFPB Director 
Rohit Chopra (Feb. 13, 2023) in U.S. Gov't Accountability Off., 
supra, at 51; Letter from CFPB Acting General Counsel to N.J. 
Citizen Action, et al., at 2 (Jan. 18, 2022).
    Problematically, the 2020 advisory opinion has been widely cited 
in support of legal conclusions that it did not reach. For example, 
it has erroneously been cited for the general propositions that no-
fee earned wage products are not credit, see, e.g., Ariz. Op. Att'y 
Gen. No. I22-005 (Dec. 16, 2022), https://www.azag.gov/sites/default/files/2022-12/I22-005.pdf, and that employer-partnered 
earned wage products are also not credit, see, e.g., ZayZoon, 
Comment Letter on Cal. Dep't of Fin. Prot. & Innovation re: Notice 
of Proposed Rulemaking [PRO 01-21], at 4 (May 17, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/46-PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf; Innovative Payments Ass'n, 
Comment Letter on Cal. Dep't of Fin. Prot. & Innovation re: Notice 
of Proposed Rulemaking [PRO 01-21], at 4 (May 11, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/10-PRO-01-21-Innovative-Payments-Association-5.11.23_Redacted.pdf. Some 
regulatory uncertainty may have resulted from the near-
contemporaneous issuance of a ``Sandbox Approval Order'' that gave 
one provider a temporary safe harbor from liability under TILA and 
Regulation Z with respect to a specific product that did not satisfy 
all the conditions that the 2020 advisory opinion identified as 
taking such a product outside the reach of TILA and Regulation Z. 
See CFPB, Payactiv Approval Order, at 5 (Dec. 30, 2020), https://files.consumerfinance.gov/f/documents/cfpb_payactiv_approval-order_2020-12.pdf. The 2020 advisory opinion applied only to 
products that had all of a number of characteristics, including that 
they were free to consumers. In contrast, the approval order 
encompassed earned wage transactions in connection with which the 
consumer incurred fees. See id. The approval order was issued under 
a CFPB policy that is no longer in effect. See generally CFPB, 
Statement on Competition and Innovation (Sept. 30, 2022), https://files.consumerfinance.gov/f/documents/cfpb_statement-on-competition-innovation_2022-09.pdf. However, that approval order was never of 
general interpretative applicability, see Payactiv Approval Order, 
supra, at 4 n.15, and was terminated even before its temporary 
status expired, CFPB, CFPB Rescinds Special Regulatory Treatment for 
Payactiv (June 30, 2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-rescinds-special-regulatory-treatment-for-payactiv/.
---------------------------------------------------------------------------

    The CFPB is taking a number of steps to spur greater competition in 
markets for consumer financial products, including to address the 
credit needs of households who incur costs due to a mismatch in the 
timing of their income and expenses. In addition, some market 
participants and investors seek to better understand the applicability 
of existing federal law in these emerging business models. To provide 
greater clarity, the CFPB is proposing to replace the 2020 advisory 
opinion with a new interpretive rule. In light of the uncertainty 
caused by the 2020 advisory opinion as noted above and the fact that 
the CFPB is proposing to overturn and replace that opinion, the CFPB is 
opting to publish this proposed interpretive rule to solicit public 
comment. The proposed interpretive rule is informed by the CFPB's 
extensive study of this market, including data collection, continuous 
monitoring, investigation, coordination with states, and engagement 
with market participants. The CFPB is seeking comment on any aspect of 
this this proposed interpretive rule. The CFPB intends to publish a 
final interpretive rule after considering comments received.

II. Proposed Interpretive Rule

    The text of the proposed interpretive rule is as follows.

A. Coverage

1. Earned Wage Products
    This interpretive rule applies to products that involve both: (1) 
the provision of funds to the consumer in an amount that is based, by 
estimate or otherwise, on the wages that the consumer has accrued in a 
given pay cycle; and (2) repayment to the third-party provider via some 
automatic means, like a scheduled payroll deduction or a preauthorized 
account debit,\10\ at or after the end of the pay cycle. Many payday 
loans would also meet this definition where the lender or State law 
restricts the amount of the loan based on accrued wages.\11\
---------------------------------------------------------------------------

    \10\ This includes repayment via ACH, check, or any other 
preauthorized repayment.
    \11\ This interpretive rule does not apply to an employer's 
actual payment of wages. Note that while the terms ``employer'' and 
``employee'' are used throughout, this interpretive rule applies 
more broadly to situations where consumers receive payment for work 
performed.
---------------------------------------------------------------------------

2. Other Products and Other Laws
    This interpretive rule only addresses the application of certain 
Regulation Z and TILA provisions; it does not address the application 
of any other laws that concern ``credit.'' Because the rule explains 
the applicability of Regulation Z, the rule may be useful to designers 
and creators of other financial products, including those relying on 
``tips'' and other related payment mechanisms.

B. Legal Analysis

1. The Truth in Lending Act and Regulation Z Cover Products Where There 
Is an Obligation to Repay Debt
    Section 1026.2(a)(14) of Regulation Z defines ``credit'' as ``the 
right to defer payment of debt or to incur debt and defer its 
payment.'' \12\ TILA defines ``credit'' virtually identically as ``the 
right granted by a creditor to a debtor to defer payment of debt or to 
incur debt

[[Page 61360]]

and defer its payment.'' \13\ As described further below, earned wage 
products are consumer credit for purposes of TILA and Regulation Z.
---------------------------------------------------------------------------

    \12\ 12 CFR 1026.2(a)(14).
    \13\ 15 U.S.C. 1602(f).
---------------------------------------------------------------------------

    TILA and Regulation Z do not define ``debt.'' Used infrequently in 
the statute and the regulation, ``debt'' for the most part only appears 
in the definition of ``credit.'' The term ``debt'' in ordinary usage 
means simply ``something owed,'' without any obvious limitation.\14\ 
Legal dictionaries, including those dating to the enactment of 
TILA,\15\ similarly describe debt as a ``sum of money due by certain 
and express agreement'' or ``a financial liability or obligation owed 
by one person, the debtor, to another, the creditor.'' \16\ If Congress 
had intended to substantially narrow the types of transactions that 
could constitute ``debt,'' it could have done so by defining the term 
in TILA.\17\ In light of this precedent, and the context in which the 
term ``debt'' appears in TILA, ``debt'' in TILA and Regulation Z 
includes any obligation by a consumer to pay another party.
---------------------------------------------------------------------------

    \14\ Debt, Merriam-Webster, https://www.merriam-webster.com/dictionary/debt (last updated Jan. 30, 2024).
    \15\ See New Prime Inc. v. Oliveira, 586 U.S. 105, 113 (2019) 
(``It's a fundamental canon of statutory construction that words 
generally should be interpreted as taking their ordinary meaning at 
the time Congress enacted the statute.'') (cleaned up).
    \16\ Debt, Black's Law Dictionary (4th ed. 1968) (defining debt 
as ``[a] sum of money due by certain and express agreement; as by 
bond for a determinate sum, a bill or note, a special bargain, or a 
rent reserved on a lease, where the amount is fixed and specific, 
and does not depend upon any subsequent valuation to settle it.''); 
Debt, Wex, https://www.law.cornell.edu/wex/debt (last updated Sept. 
2021).
    \17\ As the Court observed in Whitman v. Am. Trucking Ass'ns, 
``Congress, we have held, does not alter the fundamental details of 
a regulatory scheme in vague terms or ancillary provisions--it does 
not, one might say, hide elephants in mouseholes.'' 531 U.S. 457, 
468 (2001).
---------------------------------------------------------------------------

    This commonsense understanding of debt is reflected in State laws 
\18\ defining the term, which also tend to use very broad language to 
describe debt to mean an obligation by the consumer to pay.\19\ 
Bankruptcy law also uses a broad definition--``liability on a claim,'' 
where a ``claim'' is ``the right to payment, whether or not such right 
is reduced to judgment, liquidated, unliquidated, fixed, contingent, 
matured, unmatured, disputed, undisputed, legal, equitable, secured, or 
unsecured.'' \20\
---------------------------------------------------------------------------

    \18\ See 12 CFR 1026.2(b)(3) (providing interpretive guidance 
with respect to undefined terms). As the Board of Governors of the 
Federal Reserve System noted when it first proposed Sec.  
1026.2(b)(3), the provision and its fellow rules of construction 
``are intended to assist in understanding the regulatory language.'' 
45 FR 29702, 29705 (May 5, 1980).
    \19\ See, e.g., Cal. Civ. Code sec. 1788.2(d) (``The term `debt' 
means money, property, or the equivalent that is due or owing or 
alleged to be due or owing from a natural person to another 
person.''); Colo. Rev. Stat. Ann. sec. 5-16-103(8)(a) (`` `Debt' 
means any obligation or alleged obligation of a consumer to pay 
money arising out of a transaction, whether or not the obligation 
has been reduced to judgment.''); D.C. Code Ann. sec. 28-3814(b)(2) 
(`` `Consumer debt' means money or its equivalent, or a loan or 
advance of money, which is, or is alleged to be, more than 30 days 
past due and owing, unless a different period is agreed to by the 
consumer, as a result of a purchase, lease, or loan of goods, 
services, or real or personal property for personal, family, 
medical, or household purposes.''); Fla. Stat. Ann. sec. 559.55(6) 
(`` `Debt' or `consumer debt' means any obligation or alleged 
obligation of a consumer to pay money arising out of a transaction 
in which the money, property, insurance, or services which are the 
subject of the transaction are primarily for personal, family, or 
household purposes, whether or not such obligation has been reduced 
to judgment.''); Haw. Rev. Stat. Ann. sec. 480D-2 (`` `Debt' means 
any obligation or alleged obligation of a person to pay money 
arising out of any transaction, whether or not the obligation has 
been reduced to judgment.''); Me. Rev. Stat. tit. 32, sec. 11002(5) 
(`` `Debt' means any obligation or alleged obligation of a consumer 
to pay money arising out of a transaction in which the money, 
property, insurance or services that are the subject of the 
transaction are primarily for personal, family or household 
purposes, whether or not the obligation has been reduced to 
judgment.''); N.H. Rev. Stat. Ann. sec. 358-C:1(VI) (`` `Debt' means 
any obligation or alleged obligation arising out of a consumer 
transaction.''); N.M. Stat. Ann. sec. 61-18A-2(F) (`` `[D]ebt' means 
an obligation or alleged obligation of a debtor to pay money arising 
out of a transaction in which the money, property, insurance or 
services that are the subject of the transaction are primarily for 
personal, family or household purposes, whether or not such 
obligation has been reduced to judgment.''); N.Y. Gen. Bus. Law sec. 
600(6) (`` `Debt' means any obligation or alleged obligation of a 
consumer to pay money arising out of a transaction in which the 
money, property, insurance, or services which are the subject of the 
transaction are primarily for personal, family, or household 
purposes, whether or not such obligation has been reduced to 
judgment.''); N.D. Cent. Code Ann. sec. 13-05-01.1(6) (`` `Debt' 
means an obligation or alleged obligation to pay money arising out 
of a transaction, regardless of whether the obligation has been 
reduced to a judgment.''); Or. Rev. Stat. Ann. sec. 646.639(f) (`` 
`Debt' means an obligation or alleged obligation that arises out of 
a consumer transaction.''); 19 R.I. Gen. Laws Ann. sec. 19-14.9-3(4) 
(`` `Debt' means any obligation or alleged obligation of a consumer 
to pay money arising out of a transaction in which the money, 
property, insurance, or services that are the subject of the 
transaction are primarily for personal, family, or household 
purposes, whether or not the obligation has been reduced to 
judgment.''); Tex. Fin. Code Ann. sec. 392.001(2) (`` `Consumer 
debt' means an obligation, or an alleged obligation, primarily for 
personal, family, or household purposes and arising from a 
transaction or alleged transaction.''); Utah Code Ann. sec. 12-1-
11(1)(b) (`` `Debt' means an obligation or alleged obligation to pay 
money arising out of a transaction for money, property, insurance, 
or services.''); Wash. Rev. Code Ann. sec. 6.01.060(2) (`` `Consumer 
debt' means any obligation or alleged obligation of a consumer to 
pay money arising out of a transaction in which the money, property, 
insurance, or services which are the subject of the transaction are 
primarily for personal, family, or household purposes.''); Wyo. 
Stat. Ann. sec. 33-11-101(a)(vii) (`` `Debt' means any obligation or 
alleged obligation of a consumer to pay money arising out of a 
transaction in which the money, property, insurance or services 
which are the subject of the transaction are primarily for personal, 
family or household purposes, whether or not the obligation has been 
reduced to judgment.'').
    \20\ 11 U.S.C. 101(5)(A), (12). Bankruptcy law defines 
``consumer debt'' as ``debt incurred by an individual primarily for 
a personal, family, or household purpose.'' 11 U.S.C. 101(8).
---------------------------------------------------------------------------

    The only enumerated consumer financial law identified in the 
Consumer Financial Protection Act \21\ that defines ``debt,'' the Fair 
Debt Collection Practices Act (FDCPA), broadly states that debt 
encompasses ``any obligation or alleged obligation of a consumer to pay 
money arising out of a transaction in which the money, property, 
insurance, or services which are the subject of the transaction are 
primarily for personal, family, or household purposes, whether or not 
such obligation has been reduced to judgment.'' \22\ The main limiting 
feature in the definition of ``debt'' in the FDCPA is that it is 
limited to transactions for personal, family, or household purposes, a 
limitation already imposed elsewhere in TILA.\23\ The FDCPA definition, 
therefore, also supports a broad reading of ``debt'' under TILA and 
Regulation Z in this context, consistent with ordinary usage that 
includes all obligations to pay another.
---------------------------------------------------------------------------

    \21\ 12 U.S.C. 5481(12).
    \22\ 15 U.S.C. 1692a(5); see also 12 CFR 1006.2(h); Pollice v. 
Nat'l Tax Funding, 225 F.3d 379, 410 (3d Cir. 2000) (``Although 
[TILA] does not contain a definition of the term `debt,' we believe 
the term as used in [TILA] should be construed as it is defined in 
the FDCPA.''). Like TILA, the Consumer Financial Protection Act and 
Equal Credit Opportunity Act, for example, use the term ``debt'' in 
their definitions of ``credit'' without defining it. See 12 U.S.C. 
5481(7); 15 U.S.C. 1691a(d).
    \23\ 15 U.S.C. 1602(g), (i).
---------------------------------------------------------------------------

    In an earned wage transaction, the consumer incurs an obligation to 
pay money at a future date. For some earned wage products, the specific 
amount of money that the consumer is obligated to pay at a future date 
has an element of contingency; for example, the obligation may be 
limited by whether funds available from the next payroll event (or 
events) are sufficient to cover the amount of earned wage funds the 
consumer received. But that is still an obligation to pay money at a 
future date. TILA has long been understood to cover contingent 
obligations.\24\
---------------------------------------------------------------------------

    \24\ See, e.g., Madewell v. Marietta Dodge, Inc., 506 F. Supp. 
286 (N.D. Ga. 1980) (retail installment contract for purchase of 
automobile subject to TILA even though contingent on seller's 
ability to arrange financing); Bailey v. Comm'r of Internal Revenue, 
993 F.2d 288, 292 (2d Cir. 1993) (discussing ``[n]onrecourse 
debt''); 12 CFR 1026.33(a) (reverse mortgages--where repayment is 
contingent on future home value at the time of a termination event, 
such as the death of the borrower--subject to TILA as credit); cf. 
Small Business Lending Under the Equal Credit Opportunity Act 
(Regulation B), 88 FR 35150, 35163 (May 31, 2023) (explaining that 
merchant cash advances--under which a provider offers a merchant a 
lump sum in exchange for a specific portion of the merchant's 
proceeds from future sales of goods and services--are credit, 
notwithstanding that the repayment obligation may be contingent on 
the merchant's future sales); Consent Order, In re Better Future 
Forward, Inc., Admin. Proceeding No. 2021-CFPB-005 (Sept. 7, 2021) 
(identifying as credit income share agreements, which ``finance 
postsecondary education'' whereby ``[i]n exchange for money up 
front, students agree that once their income exceeds an income 
threshold, they will make payments based on a percentage of their 
income until either: (i) they meet a payment cap or (ii) a period of 
years elapses.'').

---------------------------------------------------------------------------

[[Page 61361]]

    Earned wage products provide consumers with ``the right to defer 
payment of debt or to incur debt and defer its payment'' because they 
incur a ``debt'' when they obtain money with an obligation to repay via 
an authorization to debit a bank account or using one or more payroll 
deductions.\25\ It does not matter that the obligation to repay is 
sometimes satisfied via payroll deduction.\26\ It is still an act of 
repayment. In contrast, when an employer pays wages, no later act of 
repayment is required, by deduction or otherwise.
---------------------------------------------------------------------------

    \25\ Earned wage products are offered or extended to consumers 
primarily for personal, family, or household purposes, so they also 
meet the Regulation Z definition of ``consumer credit.'' 12 CFR 
1026.2(a)(12).
    \26\ It is not uncommon for credit providers to compel repayment 
of debt using wage garnishment automatically deducted from consumer 
paychecks. Payday lenders are sometimes repaid through court-ordered 
wage garnishment. See CFPB, Ask CFPB: Can a Payday Lender Garnish My 
Bank Account or My Wages? (last reviewed Sept. 23, 2022), https://www.consumerfinance.gov/ask-cfpb/can-a-payday-lender-garnish-my-wages-en-1609/. Consumers may pay some lenders directly by paycheck 
allotment. Cf. 12 CFR part 1026, supplement I, comment 2(a)(14)-2 
(``Credit includes a transaction in which a cash advance is made to 
a consumer . . . in exchange for the consumer's authorization to 
debit the consumer's deposit account, and where the parties agree . 
. . that the consumer's deposit account will not be debited, until a 
designated future date.'').
---------------------------------------------------------------------------

    This interpretive rule replaces the advisory opinion the CFPB 
issued in November 2020, which stated that some earned wage products 
are not ``credit'' because they would not constitute a ``debt.'' \27\ A 
primary justification for this statement, based on a legal dictionary 
definition of ``debt'' requiring a ``liability,'' was that the narrow 
type of earned wage products covered by that opinion--which, among 
other characteristics, were administered through the employer and cost-
free to the consumer--were ``effectively'' providing earned wages to 
consumers early and, therefore, were not debts. Per the analysis above, 
the 2020 advisory opinion--narrowly focused as it was on one unique 
type of product--did not consider the full scope of available precedent 
and definitions in common legal usage when reaching its narrow 
conclusion.\28\ Many credit products are used to gain liquidity in 
advance of receipt of a paycheck and thus will have some de facto 
resemblance to early payment of wages, but that does not take them 
outside the definition of credit. Earned wage products, as distinct 
from an employer's actual payment of wages, are no exception.\29\
---------------------------------------------------------------------------

    \27\ See 2020 Advisory Opinion, supra note 6.
    \28\ The 2020 advisory opinion stated that there would not be a 
``liability.'' That word is not used in all dictionary definitions 
of the term ``debt,'' and regardless, the earned wage product did 
require repayment.
    \29\ The CFPB also noted that the 2020 advisory opinion would be 
consistent with 12 CFR part 1026, supplement I, comment 2(a)(14)-
A31JY2.1.v. See 2020 Advisory Opinion, supra note 6, at 9. However, 
that comment was promulgated as an exclusion from the definition of 
``credit'' after notice and comment, which suggests that the product 
would be subject to TILA and Regulation Z but for the exclusion. 
Products similar to products in the exclusion, but not covered by 
the exclusion, should therefore be presumed to be ``credit.''
    In the 2020 advisory opinion, the CFPB also noted that its 
interpretation was consistent with certain statements in the CFPB's 
2017 Payday Lending Rule. However, the Payday Rule did not make a 
determination as to whether earned wage products are credit, stating 
only that some product constructs ``may not be.'' The CFPB declined 
to perform the more detailed analysis necessary to come to a 
considered conclusion on the boundaries of TILA and Regulation Z at 
that time because that was not necessary for the rulemaking 
exercise. It is performing that analysis now, in this interpretive 
rule. Some earned wage products may not be covered by the Payday 
Rule because of its ``wage advance'' and ``no cost advance'' 
exclusions. See 12 CFR 1041.3(d)(7) and (8). However, these 
exclusions can only apply to earned wage products to the extent that 
such products are TILA and Regulation Z credit. As a result, the 
CFPB's earlier decision to exclude certain earned wage product 
constructs from the Payday Rule has no impact on the credit status 
of such products under TILA or Regulation Z.
---------------------------------------------------------------------------

    Moreover, because the 2020 advisory opinion only addressed one 
particular type of product, its analysis does not shed light on how 
TILA and Regulation Z apply to new offerings on the market. The 2020 
advisory opinion found that the products it addressed ``functionally 
operate[ ] like an employer that pays its employees earlier than the 
scheduled payday,'' but earned wage products in which, for example, 
consumers make a payment in connection with receiving funds do not 
leave consumers in the same position that they would be if their 
employer just paid them earlier. While the 2020 advisory opinion 
emphasized the absence of fees or charges to support its conclusion 
that covered products were different in kind from the credit covered by 
TILA and Regulation Z, except on a small number of employer-specific 
products, the vast majority of earned wage transactions involve 
consumer payment.\30\
---------------------------------------------------------------------------

    \30\ See, e.g., 2024 Paycheck Advance Report, supra note 2, at 
11 (``Without employer subsidization, across both years in our 
[employer-partnered earned wage] sample, around 90% of workers paid 
at least one fee and approximately 82% of transactions incurred a 
fee.''); Cal. Dep't of Fin. Prot. & Innovation, 2021 Earned Wage 
Access Data Findings, at 7 (2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/2021-Earned-Wage-Access-Data-Findings-Cited-in-ISOR.pdf (``In 2021, for the 5,827,120 transactions 
completed by tip-based companies, providers received tips 73% of the 
time.''). To the extent the interpretation underlying the 2020 
Payactiv approval order articulated a different rationale regarding 
fees or charges for earned wage transactions, the CFPB no longer 
believes that interpretation is correct.
---------------------------------------------------------------------------

2. Finance Charge Disclosures Include Consumer Payments That Are Made 
Incident to the Extension of Credit and Imposed by the Creditor 
Directly or Indirectly on the Consumer
a. General
    In general, the obligations of Regulation Z apply to any credit 
provider that regularly offers or extends consumer credit subject to a 
finance charge.\31\ The finance charge is ``the cost of consumer credit 
as a dollar amount.'' \32\ Unless specifically excluded by the 
regulation, this includes ``any charge payable directly or indirectly 
by the consumer and imposed directly or indirectly by the creditor as 
an incident to or a condition of the extension of credit.'' \33\ If 
providers do not disclose finance charges properly, they violate 
Regulation Z.
---------------------------------------------------------------------------

    \31\ See 12 CFR 1026.1(c)(1)(iii). Note that finance charges are 
not a necessary precondition for the obligations of Regulation Z to 
apply to a provider of Regulation Z credit. For example, the 
requirements of Regulation Z will apply where the provider regularly 
offers or extends consumer credit that is payable by a written 
agreement in more than four installments, even if the credit 
provided is not subject to finance charges. See id. As another 
example, certain Regulation Z requirements apply when the offering 
or extension of consumer credit involves a credit card, even if the 
credit is not subject to a finance charge. See 12 CFR 1026.1(c)(2). 
This interpretive rule does not state any view about grounds on 
which an earned wage provider of Regulation Z credit might be 
subject to Regulation Z obligations other than due to their 
provision of credit subject to a finance charge.
    \32\ 12 CFR 1026.4(a).
    \33\ Id.
---------------------------------------------------------------------------

    Neither Regulation Z nor TILA further explains the meaning of 
``incident to the extension of credit.'' The statute's history and 
context indicate that Congress intended this term to be interpreted 
expansively. When TILA was enacted in 1968, Black's Law Dictionary 
defined ``incident'' to mean ``anything which is usually connected with 
another, or connected for some purposes, though not inseparably.'' \34\ 
The phrase ``incident to the extension of credit'' thus did not require 
that the degree of connection be significant. The Supreme Court, in a 
unanimous decision by Justice Thomas, noted in the context of TILA's 
finance charge

[[Page 61362]]

provision that while ``the phrase `incident to or in conjunction with' 
implies some necessary connection between the antecedent and its object 
. . . the phrase `incident to' does not make clear whether a 
substantial (as opposed to a remote) connection is required.'' \35\ 
Thus, while a substantial connection may not be the minimum degree of 
connection required under Regulation Z and TILA for a payment to be 
part of the consumer's cost of credit, as an interpretive matter, any 
payment exacted by the creditor that is substantially connected must be 
part of the finance charge.\36\
---------------------------------------------------------------------------

    \34\ Incident, Black's Law Dictionary (4th ed. 1968).
    \35\ Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 
240-41 (2004). In Pfennig, the Supreme Court held that an overlimit 
fee was not unambiguously imposed as an incident to the extension of 
credit because it could reasonably be seen as a penalty for 
violation of the credit agreement instead. See id. at 239-41. The 
Court recognized that ``regardless of how the fee is 
characterized,'' there was ``at least some connection'' between the 
fee and credit extension, but that was not enough to conclude that 
the fee was necessarily imposed as an ``incident to'' credit because 
the term ``does not make clear whether a substantial (as opposed to 
a remote) connection is required.'' Id. at 241.
    \36\ This interpretive rule does not seek to establish the 
degree of connection required beyond interpreting ``incident to'' to 
cover charges that are substantially connected to a particular 
extension of credit.
---------------------------------------------------------------------------

    In addition, a payment may be ``imposed directly or indirectly by 
the creditor'' and hence part of the finance charge even if the credit 
can be obtained without making such payment. Regulation Z includes in 
the cost of credit payments imposed by the creditor that are 
``conditions of'' the extension of credit and that are ``incident to'' 
it.\37\ By the same token, a creditor can ``impose'' a cost on a 
consumer--in the sense of exacting it from them--``directly or 
indirectly'' even if that payment is not required for the extension of 
credit.\38\ The non-exhaustive list of finance charges provided in 
Regulation Z includes consumer payments that, even when they are not a 
condition of the extension of credit, are nonetheless finance charges 
because the creditor exacts them in connection with the extension of 
credit.\39\
---------------------------------------------------------------------------

    \37\ TILA's definition of finance charge only references charges 
imposed ``as an incident to the extension of credit.'' 15 U.S.C. 
1605(a). The Board's implementing regulation then interprets the 
statutory term ``incident to'' as encompassing--while not being 
limited to--payments that are conditions of the extension of credit. 
See 12 CFR 1026.4(a). This interpretation has been in uninterrupted 
effect since the Board first adopted TILA regulations on point.
    \38\ TILA's history and context indicate that Congress intended 
the word ``imposed'' to be interpreted broadly to encompass a 
variety of charges the creditor might seek to have a consumer pay in 
connection with the extension of credit. The finance charge 
definition uses parallel language: the charges are ``payable 
directly or indirectly by'' the consumer, and ``imposed directly or 
indirectly by'' the creditor. The structure of the provision thus 
uses ``imposed'' as a counterpoint to ``payable,'' so as to identify 
the party doing the charging as opposed to the party being charged. 
Similarly, the 1968 Black's Law Dictionary definition of 
``impose''--``to levy or exact as by authority; to lay as a burden, 
tax, duty, or charge''--emphasizes the deployment of power by the 
party doing the imposing. Impose, Black's Law Dictionary (4th ed. 
1968). As the Board previously noted, ``the term `imposed' is 
understood broadly, to include any cost charged by the creditor 
(unless otherwise excluded).'' 60 FR 66179, 66180 (Dec. 21, 1995). 
See also, e.g., Impose, Merriam-Webster, https://www.merriam-webster.com/dictionary/impose (last updated Feb. 9, 2024) (defining 
``impose'' with a range of meanings, from ``to establish or apply by 
authority'' to ``to establish or bring about as if by force'' to 
simply ``pass off'' (emphasis added)).
    \39\ See 12 CFR 1026.4(b); see also 61 FR 49237, 49239 (Sept. 
19, 1996) (explaining that payments for services that the creditor 
does not require can still be finance charges when the payment is 
``imposed as an incident to that particular extension of credit''); 
cf. Incident, Black's Law Dictionary (11th ed. 2019) (defining 
``incident'' as ``[d]ependent upon, subordinate to, arising out of, 
or otherwise connected with (something else, usu. of greater 
importance)'').
---------------------------------------------------------------------------

    Two costs that consumers may incur in connection with particular 
extensions of earned wage credit are ``tips'' (and other similarly 
labeled payments, like ``gratuities'') and expedited funds delivery 
fees. When incurred, these payments are substantially connected to the 
extension of credit. Each happens because of the associated extension 
of credit, and the connection between each type of payment and that 
extension is close and clear. Thus, each is incident to the extension 
of credit. Expedited funds delivery fees are also ``imposed directly or 
indirectly by the creditor'' and so should be included as part of the 
``cost of consumer credit as a dollar amount.'' Under certain 
circumstances, discussed further below, ``tips'' and similarly styled 
consumer payments may similarly be ``imposed directly or indirectly by 
the creditor'' such that they are a part of the finance charge.
b. Expedited Funds Delivery Fees
    Speed of access to funds is an integral and defining aspect of 
earned wage products. They are designed to address--and marketed as 
addressing--the liquidity problem that arises between the accrual of 
wages and their actual payment. That problem necessarily occurs in a 
very short period,\40\ so the value of this type of credit to the 
consumer includes the rapid availability of funds. Thus, when earned 
wage product providers offer two speeds for delivering funds (which 
they typically do), consumers predominantly opt for the faster.\41\ 
That option typically involves direct imposition of an expedited 
delivery or ``instant funds'' fee that the creditor does not impose on 
the slower form of credit.
---------------------------------------------------------------------------

    \40\ To obtain earned wage credit, consumers must first accrue 
wages within a given pay period. Repayment then occurs at or very 
shortly after the conclusion of that same pay period. As a result, 
the duration of any particular earned wage credit extension has to 
be very brief.
    \41\ See 2024 Paycheck Advance Report, supra note 2, at 11. For 
the sample of employer-partnered providers covered in the CFPB's 
2024 Report, expedited delivery fees accounted for more than 96.6 
percent of all consumer-paid fee revenue by dollar value. See id. 
Public data also indicates that earned wage advance providers 
relying on a tipping revenue model obtain more than 25 percent of 
the dollar value of consumer payments as expedited delivery fees. 
See Cal. Dep't of Fin. Prot. & Innovation, supra note 30, at 6 n.11, 
7.
---------------------------------------------------------------------------

    Availability of a slower speed does not control the cost of credit 
for the faster form of credit. Though consumers may not have to opt for 
faster funds, when they do so, the resulting speed is a feature of the 
credit extended, so the resulting fee is part of the cost of credit. As 
observed by the Board of Governors of the Federal Reserve System, 
``even though a lender may not require a particular loan feature, the 
feature may become a term of the credit if it is included.'' \42\ The 
speed with which earned wage credit provides liquidity to the consumer 
is an integral feature of such credit, which is why consumers tend to 
opt for faster delivery when it is available. Thus, when the consumer 
pays for that faster delivery, the associated fee is immediately and 
directly connected to the particular extension of credit. That 
substantial connection makes this ``a fee imposed as an incident to 
that particular extension of credit,'' and accordingly one that must be 
disclosed as part of the finance charge.\43\
---------------------------------------------------------------------------

    \42\ 61 FR 49237, 49239 (Sept. 19, 1996). The expedite fee at 
issue here differs in kind from the two types of expedite fees 
previously considered by the Board of Governors of the Federal 
Reserve System in the context of credit cards accessing home equity 
lines of credit: a fee for expediting delivery of the physical card, 
and a fee for expediting a consumer's payment. See 12 CFR part 1026, 
supplement I, comments 6(a)(2)-2(ix) and (x). The Board determined 
that fees for those services did not need to be included in account 
opening disclosures as ``other charges'' or ``finance charges.'' See 
68 FR 16185, 16186-87 (Apr. 3, 2003). Neither of those services--
faster possession of a physical card or faster payments of amounts 
outstanding--are as closely and integrally connected to the 
extension of credit as faster funds access is to obtaining an earned 
wage product.
    \43\ Cf. 61 FR 49237, 49239 (Sept. 19, 1996) (noting with 
respect to debt cancellation fees that ``[a]lthough the same loan 
may be available without that feature, with respect to a loan that 
has been structured in this manner, the . . . fee is one that has 
been imposed as an incident to that particular extension of 
credit''). Before this clarification from the Board, the Eleventh 
and Seventh Circuits had held that charges for optional services 
should not be considered finance charges because the consumer 
assumed their payment voluntarily. See Veale v. Citibank, 85 F.3d 
577, 579-81 (11th Cir. 1996); McGee v. Kerr-Hickman, 93 F.3d 380, 
381-86 (7th Cir. 1996). The CFPB sees no textual basis in the 
regulation (or statute) to disagree with the Board's considered 1996 
position on payment for voluntary services. As the Board discerned, 
it does not matter that it is possible to obtain credit without the 
relevant service if the service is a feature of the loan affecting 
the total price paid for the credit.

---------------------------------------------------------------------------

[[Page 61363]]

    Regulation Z also covers expedited delivery fees as finance charges 
because such a fee is a ``condition'' of an extension of credit. As 
noted above, when an earned wage product provider offers a slower and 
faster loan, and the faster loan requires payment of an expedited 
delivery fee, the expedited delivery fee is a ``condition'' of the 
extension of that type of credit.
c. ``Tips'' and Similarly Labeled Payments
    In connection with the extension of earned wage credit, some 
providers solicit consumers for what they variously describe as 
``tips,'' ``gratuities,'' ``donations,'' ``voluntary contributions,'' 
or the like. The CFPB is aware of a wide range of practices used by 
credit providers to solicit these kinds of payments from consumers, 
including: default ``tip'' amounts that the consumer must remove each 
time to avoid being charged; suggesting particular ``tip'' amounts or 
percentages; suggesting or stating that ``tips'' serve to ensure the 
future supply of credit to the individual or other users; and including 
multiple prompts to ``tip'' throughout the process of receiving credit.
    Whatever the exact practice used, when such ``tip'' payments are 
solicited and then paid in connection with the extension of credit, 
there is a clear and close connection between the ``tip'' and the 
associated extension of credit. In such circumstances, consumers pay 
the ``tip'' for the credit extended, and the credit is the direct and 
proximate cause of the ``tip.'' \44\ That substantial connection 
between payment and associated extension of credit means that the 
payment is ``incident to . . . the extension of credit.'' \45\ Indeed, 
as a practical matter, tips are a central source of revenue for the 
earned wage product providers that solicit them. For such providers, 
public data shows that consumers made ``tip'' payments in connection 
with about 73 percent of all such credit extensions, with such payments 
representing roughly the same share of consumer-side revenue for these 
providers.\46\
---------------------------------------------------------------------------

    \44\ Such payments are not tips or gratuities in any traditional 
sense. Consumers generally pay tips to individual workers in the 
service industry, not to firms (whether partnered with the employer 
or otherwise) for lending them money. Providers should exercise care 
in ensuring that the language they use here is not deceptive.
    \45\ See supra note 35.
    \46\ See Cal. Dep't of Fin. Prot. & Innovation, supra note 30, 
at 1, 7.
---------------------------------------------------------------------------

    As explained above, a payment may be ``imposed directly or 
indirectly by the creditor'' and hence may be part of the finance 
charge even if the credit can be obtained without making the 
payment.\47\ Under certain circumstances, ``tips'' and similarly styled 
consumer payments may be ``imposed directly or indirectly by the 
creditor'' such that they are part of the finance charge. A provider 
using its authority--real or implied--to exact a ``tip'' from a 
consumer in connection with an earned wage transaction has ``imposed'' 
the resulting consumer payment.\48\ Relevant considerations when 
determining whether a ``tip'' or similar payment is imposed by the 
creditor as part of the finance charge include but are not limited to: 
soliciting a ``tip'' before or at the time of a credit extension 
(rather than some significant time after it); labeling the solicited 
payment with a term (such as ``tip'') that carries an expectation that 
the consumer will make such a payment in the normal course; setting 
default ``tip'' amounts or otherwise making it practically more 
difficult for the consumer to avoid leaving a ``tip''; suggesting 
``tip'' amounts or percentages to the consumer; repeatedly soliciting 
``tips,'' even in the course of a single transaction; and stating or 
otherwise implying, directly or indirectly, truthfully or otherwise, 
that ``tipping'' may impact subsequent access to or use of the 
product.\49\
---------------------------------------------------------------------------

    \47\ As explained above, payments that are not required as a 
condition of the credit but are nonetheless incident to it can be 
``imposed directly or indirectly by the creditor.'' Including only 
``conditions of'' the extension of credit in the finance charge 
would improperly read ``incident to'' out of Regulation Z's 
definition of finance charge, and a creditor can ``impose'' a cost 
on a consumer even if the cost is not required for the extension of 
credit.
    \48\ A consumer's reasonable understanding that a provider 
expects a ``tip'' in connection with a transaction is evidence that 
the provider exacts it as if by authority. This kind of reasonable 
understanding does not depend on whether ``tipping'' impacts the 
supply of credit to the consumer now or in the future.
    \49\ The presence or absence of one or all of these 
considerations may not be determinative. The importance and 
relevance of these and other considerations will vary in the context 
of a particular product and how it is offered or provided to 
consumers.
---------------------------------------------------------------------------

III. Regulatory Matters

    This is a proposed interpretive rule issued under the CFPB's 
authority to interpret TILA and Regulation Z, including under section 
1022(b)(1) of the Consumer Financial Protection Act of 2010, which 
authorizes guidance as may be necessary or appropriate to enable the 
CFPB to administer and carry out the purposes and objectives of Federal 
consumer financial laws.\50\ While not required under the 
Administrative Procedure Act (APA), the CFPB is soliciting comments on 
the proposal and may make revisions when it issues a final interpretive 
rule as appropriate in light of feedback received.
---------------------------------------------------------------------------

    \50\ 12 U.S.C. 5512(b)(1).
---------------------------------------------------------------------------

    By operation of TILA section 130(f), no provision of TILA sections 
130, 108(b), 108(c), 108(e), or section 112 imposing any liability 
would apply to any act done or omitted in good faith in conformity with 
the final interpretive rule, notwithstanding that after such act or 
omission has occurred, the final interpretive rule is amended, 
rescinded, or determined by judicial or other authority to be invalid 
for any reason.\51\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 1640(f).
---------------------------------------------------------------------------

    The CFPB has determined that this proposed interpretive rule, if 
finalized, would not impose any new or revise any existing 
recordkeeping, reporting, or disclosure requirements on covered 
entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.\52\
---------------------------------------------------------------------------

    \52\ 44 U.S.C. 3501-3521.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-16827 Filed 7-30-24; 8:45 am]
BILLING CODE 4810-AM-P