GLOBAL PAYROLL MAGAZINE
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for a loan product. The programs have no recourse in collecting for mistakes or overpayments, and will not report users to consumer credit agencies, unlike traditional consumer loans. Consumer advocates from the start had serious reservations over whether EWA is a true benefit for employees, however. Primarily, there is the claim that since the technology allowed employees to receive money (albeit, based on their earned wages) prior to employers sending out pay on payday, this was not access to wages, but simply a unique way of providing loans to cover individuals until payday. According to this school of thought, EWA is a consumer loan, and the CFPB, in its proposed interpretive rule, agreed, rejecting outright the claim that EWA is an innovative financial tool that is different from a loan. Director Chopra said the proposal “would not impose any new requirements,” but simply characterizing these arrangements as loans creates additional burdens on EWA providers.
Providers currently disclose fee amounts in dollars. Should the CFPB proposal get finalized, it would mean more burden in providing conversions to interest when presenting the costs under the law. And the interest rate would wildly vary with each transaction, depending upon how much an employee accessed, the fee amount, and how many days to payday the access occurred. An amount accessed five days from payday would have an interest rate less than the same amount accessed two days before payday. Several groups already said they could demonstrate that the CFPB rule would hurt employees benefitting from the existing arrangements. Others contend that the CFPB needs to do the difficult work of regulating this as a new consumer financial product, and not try to shoehorn it into the dated existing loan regulatory regime.
Comments on the proposal are due to the CFPB on August 30.
Author: Michael Baer
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com , or book Michael as a mentor through the GPA Mentor page .
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