GAO Wants CFPB to Clarify its Definition for Fintech Products

The Government Accountability Office (GAO) has issued a recent report that calls on the Consumer Financial Protection Bureau (CFPB) to clarify its definition of “credit” for earned wage access products under the Truth in Lending Act.

Financial technology – or “fintech” – allows customers to receive a portion of their paycheck before payday through “earned wage access.” This is money they have already earned, but have not yet received in between pay periods.

However, the GAO report says that regulatory uncertainty exists for certain earned wage access products.

“State and Federal regulators have sought to better understand fintech products through measures such as information-sharing agreements with companies,” the report says. “Federal financial regulators are modifying their examination processes to better monitor banks’ partnerships with fintech companies.”

The regulators have also issued guidance for fintech products. For example, CFPB issued an advisory opinion in November 2020 that clarified that earned wage access products “with specific characteristics” are not considered an extension of credit under the Truth in Lending Act.

Specifically, the opinion says that in order to be covered, the earned wage access product must be offered through an employer, the employee cannot be charged fees to access earned wages, and the provider must recover the advanced amount through an employer-facilitated payroll deduction, along with other requirements.

“However, despite this guidance, some have expressed continued uncertainty about how the law applies to products that do not fall under the advisory opinion,” GAO states. “Further clarification could help companies that offer these products understand whether the act and its disclosure requirements are applicable.

GAO made one recommendation to CFPB, advising that it issue clarification on the application of the Truth in Lending Act’s definition of “credit” for earned wage access products not covered by its November 2020 advisory opinion. CFPB agreed with the recommendation.

“Based on our own review, the November 2020 advisory opinion has created significant confusion, rather than clarity,” CFPB Director Rohit Chopra wrote. “Accordingly, the CFPB concurs with the GAO’s recommendation and intends to issue further clarification in this area.”