How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part Two—Earned Wage Access
Release Date: 10/24/2024
An Empirical Study of Boilerplate in Consumer Contracts
Consumer Finance Monitor
On January 4 of this year, we released a podcast show entitled; “A look at a new approach to consumer contracts”. Our special guest at that time was Professor Andrea Boyack, a Professor at the University of Missouri School of Law. That podcast was based on a then recent law review article published by Professor Boyack entitled “The Shape of Consumer Contracts, 101 Denv L. Rev. 1 (2023). Today, we are joined again by Professor Boyack who has written a follow-up article entitled: “Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights,” University of Missouri School of...
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Should Congress Create a New Federal Charter for Non-Bank Payments Companies?
Consumer Finance Monitor
In this podcast show, we explore with our repeat guest, Professor Dan Awrey of Cornell University Law School, his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for non-banks engaged in the payments business, like PayPal and Venmo. The and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article describes in general terms what we discussed: The United States is the only country in the world in which both federal and state governments possess independent...
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CFPB’s Proposed Mortgage Servicing Rule Amendments: Understanding the Impact on Loss Mitigation, Foreclosure, and Language Access
Consumer Finance Monitor
This summer, the CFPB issued its long-awaited proposed rule amending the mortgage servicing rules under Regulation X, with a focus on loss mitigation procedures, foreclosure protections, and language access. These changes were previewed by the CFPB as a means to streamline, and add flexibility to, the loss mitigation process, in light of the industry’s successful efforts during the COVID-19 pandemic. However, the CFPB’s proposal also significantly expands borrower protections during the loss mitigation process, creates extensive new operational challenges for servicers, and leaves many...
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State Fair Access and Debanking Laws Bring Country’s Political and Cultural Divisions to the Fore
Consumer Finance Monitor
Our podcast listeners are very familiar with federal fair lending and anti-discrimination laws that apply in the consumer lending area: the Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA). Those statutes prohibit discriminating against certain protected classes of consumer credit applicants. For example, the ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); the...
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How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part Two—Earned Wage Access
Consumer Finance Monitor
Today’s podcast, which repurposes a recent webinar, is the conclusion of a two-part examination of the CFPB’s use of a proposed interpretive rule, rather than a legislative rule, to expand regulatory requirements for earned wage access (EWA) products. Part One, which was released last week, focused on the CFPB’s use of an interpretive rule to expand regulatory requirements for buy-now, pay-later (BNPL) products. We open with a discussion of EWA products, briefly describing and distinguishing direct-to-consumer EWAs and employer-based EWAS. We review some of the consumer-friendly features...
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How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part One - Buy-Now, Pay-Later
Consumer Finance Monitor
Today’s podcast, which repurposes a recent webinar, is the first in a two-part examination of the CFPB’s use of an interpretive rule, rather than a legislative rule, to expand regulatory requirements for buy-now, pay-later (BNPL) products. Part Two, which will be available next week, will focus on the CFPB’s use of a proposed interpretive rule to expand regulatory requirements for earned wage access (EWA) products. We open with an overview of what interpretive rules are and how they differ procedurally and substantively from legislative rules. The intended use of interpretive rules is to...
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The Regulation of Negative Option Consumer Contracts – Silence as Consent
Consumer Finance Monitor
Our podcast today focuses on negative option consumer contracts, i.e., agreements that allow a seller to assume a customer’s silence is an acceptance of an offer. Such contracts are ubiquitous in today’s marketplace. Today’s guests are Kaitlin Caruso, a professor at the University of Maine Law School, and Prentiss Cox, a professor at the University of Minnesota Law School. They have written an article entitled, “Silence as Consumer Consent: Global Regulation of Negative Option Contracts.” The article is available on SSRN and will soon be published in the American University Law...
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Have State-Chartered, FDIC-Insured Banks Finally Achieved Interstate Usury Parity with National Banks?
Consumer Finance Monitor
In today’s podcast, which repurposes a recent webinar, we examine the impact, if any, of a landmark opinion rendered by Judge Daniel Domenico of the Federal District Court for the District of Colorado in a case challenging recently enacted Colorado legislation on interstate loans made from outside Colorado to Colorado residents. We also address the effects this decision and the outcome of this litigation may have on interstate rate exportation by state-chartered banks across the country. We open with a brief history of the interest rate exportation authority of national and state-chartered...
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Regulators Escalate Focus on the Risks of Bank Relationships with Fintechs and Other Third Parties
Consumer Finance Monitor
On July 25, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the agencies) issued a “Joint Statement on Banks’ Arrangements with Third Parties to Deliver Bank Deposit Products and Services” to “note potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end users”. On the same day, the agencies issued a “Request for Information on Bank-Fintech Arrangements Involving Banking Products and Services...
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The Demise of the Chevron Doctrine – Part II
Consumer Finance Monitor
On June 28, in Loper Bright v. Raimondo, et al., the Supreme Court overturned the Chevron deference doctrine, a long-standing tenet of administrative law established in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine directed courts to defer to a government agency’s interpretation of ambiguous statutory language as long as the interpretation was reasonable. However, legal scholars now express widely divergent views as to the scope and likely effects of Loper Bright’s overruling of the Chevron doctrine on the future course of regulatory agency...
info_outlineToday’s podcast, which repurposes a recent webinar, is the conclusion of a two-part examination of the CFPB’s use of a proposed interpretive rule, rather than a legislative rule, to expand regulatory requirements for earned wage access (EWA) products. Part One, which was released last week, focused on the CFPB’s use of an interpretive rule to expand regulatory requirements for buy-now, pay-later (BNPL) products.
We open with a discussion of EWA products, briefly describing and distinguishing direct-to-consumer EWAs and employer-based EWAS. We review some of the consumer-friendly features that are common to EWAs, including that there is no interest charged and they are typically non-recourse, and discuss expedited funding fees and tips, neither of which is required to access EWAs. We also provide an overview of how some states have attempted to regulate (or specifically not regulate) EWAs.
We then transition into a discussion of the CFPB’s history with EWA products, including the Bureau’s advisory opinion in 2020 that took a markedly different approach to EWAs, essentially taking the position that a certain subset of EWAs fell outside of the definition of “credit” under the Truth in Lending Act (TILA) and Regulation Z. The CFPB’s proposed interpretive rule, on the other hand, states that EWAs are “credit” and that expedited funding fees and optional tips, in most circumstances, are part of the finance charge that must be disclosed under TILA and Regulation Z. We explore the Bureau’s reasoning in support of these conclusions and some of the compliance difficulties that the proposed interpretive rule would create were it to go into effect as written. Since this recording took place, the CFPB has posted over 148,000 comment letters that it has received on the proposed interpretive rule, many of which are from consumers who use EWAs to access a portion of their earned wages prior to their scheduled payday and are concerned that the proposed interpretive rule could limit or jeopardize their access to EWAs. The high number of responses demonstrates the level of interest that the CFPB’s proposed interpretive rule has generated.
We conclude with thoughts about vulnerabilities with both the proposed interpretive rule for EWAs and the interpretive rule for BNPLs that we described in Part One of this podcast, as well as how these rules could potentially be challenged. One notable development that has occurred since our recording is that the Financial Technology Association has filed a complaint asking a D.C. federal court to strike down the interpretive rule for BNPLs because of the alleged violations of the Administrative Procedure Act that we discuss in this episode.
Alan Kaplinsky, former Practice Leader and Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates today’s episode, and is joined by John Culhane and Michael Guerrero, Partners in the Group, and John Kimble, Of Counsel in the Group.