.png)
By Tom Scanlon
General Counsel and Chief Compliance Officer
The California Department of Financial Protection and Innovation (“DFPI”) adopted its final rule to regulate an earned wage access provider that delivers its services to consumers in California (the “California EWA Rule” or “Rule”). The new California EWA Rule is a milestone for promoting a better ecosystem for EWA—and Rain believes that the Rule can provide a fair framework that other state agencies can build on to promote the right kinds of consumer protections for EWA services.
At Rain, we consistently have supported regulatory measures—by federal and state agencies—that seek to protect consumers while promoting innovation in how EWA services can be delivered. Rain applauds the multi-stage process used by the DFPI to develop the California EWA Rule. The DFPI has demonstrated that when comments and concerns, from consumers, their advocates, and EWA providers themselves, are taken into consideration, responsible regulation for this still-emerging financial service can be achieved.
Big Takeaways for the California EWA Rule
State officials who lead state financial services agencies continue to evaluate EWA products as distinct from standard extensions of credit to consumers. Several states have enacted new laws that regulate EWA services, and the trend is towards the creation of a new regulatory structure for EWA. The California EWA Rule best demonstrates this state-level trend toward responsible oversight of an EWA provider.
Here are the key takeaways for the California EWA Rule:
1. Employers Are Not Covered. A typical employer that goes about its business and engages an “employer-integrated” EWA provider is not covered by the California EWA Rule.
Thus, only Rain—not your business—needs to concern itself with the new requirements adopted by the California DFPI.
2. EWA Provider Must Register With the DFPI. The EWA provider must register with, and be supervised by, the DFPI. In order to continue to deliver its EWA services in accordance with the California EWA Rule, an EWA provider must be prepared to submit its application to the DFPI by mid-February.
Rain already is at work in preparing its application to the DFPI, and has systems designed to meet the agency’s expectations when conducting its oversight.
3. Effect of Registration. Once registered with the DFPI, an EWA provider must maintain its operations so that the provider can (i) timely file the required reports describing the nature and scope of the provider’s EWA services and (ii) satisfy the DFPI’s expectations for compliance when the DFPI conducts its examinations. The DFPI has announced that examinations of EWA providers could begin as early as the late 2025.
4. Consumers Are Protected By Registration. The main benefit of the registration system under the California EWA Rule is for consumers to have confidence that the EWA provider that is marketing its services is a bona fide business—not a scam. A registered EWA provider is supervised by, among other measures, oversight of the provider’s owners and top-level management via background checks, and the provider’s operations are subject to periodic examinations to assess compliance with applicable law.
Looking Forward
What are some of the implications of the California EWA Rule? Rain believes that the framework adopted by the DFPI is the best path for EWA providers, such as Rain, that deliver “employer-integrated” EWA services. Consumers should be supported by responsible regulations for EWA to help them understand how an EWA product is safe to use.
In particular, for an employer-integrated model, such as Rain’s EWA services, the consumer should have confidence that the registered EWA provider needs to comply with basic guardrails designed to prevent the kinds of “debt traps” that payday lenders and other unscrupulous creditors set for consumers. For example, under the California EWA Rule, a registered provider must conform to the following key requirements:
(i) The provider may not have any legal or other contractual claim or remedy against the consumer based on the consumer’s failure to repay in full the amount of the earned wage advance; and
(ii) If the amount due is not timely repaid (i.e., by the consumer’s employer via an adjustment to the consumer’s paycheck), the provider may not engage in any debt collection activities, place the amount due as a debt with or sell it to a third party, or report the amount due to a consumer reporting agency.
All earned wage payments made by Rain to a consumer are non-recourse. Rain does not report information to any type of debt collection agency or to a consumer reporting agency if Rain does not receive payments from the employer because the employer cannot make the adjustment(s) to the consumer’s paycheck.
Rain encourages other state legislative bodies, as well as state financial regulatory agencies, to work expeditiously to enact EWA laws that track the DFPI’s rule. Rain supports responsible regulations for EWA services—i.e., those that provide consumer protections and promote innovation in EWA services—so that consumers and their employers can have higher levels of trust in the EWA providers that they are doing business with.
Tom Scanlon works as General Counsel and Chief Compliance Officer for Rain Technologies Inc.
Tom advises the company on its contracts with employee-customers and its employer-partners, as well as the company’s arrangements with service providers, for Rain’s earned-wage access services. Tom also is responsible for counseling Rain on compliance with federal and state laws regulating consumer financial products and services.
Prior to joining Rain, Tom was a partner with Dorsey & Whitney LLP, and advised banks, fintech companies, and other clients on banking activities, payments systems, and matters involving consumer financial products and services. At the start of his career in Washington, D.C., Tom served at the Federal Reserve Board, and worked on rules for payments activities, financial privacy, data security, and consumer reporting activities. From 2009 to 2015, Tom served at the Department of the Treasury, and worked as the principal attorney of the Department’s team to help draft the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act). Tom has experience with a range of financial services laws, including anti-money laundering laws, the Electronic Fund Transfer Act, and the Military Lending Act. Tom received his J.D. from the University of California, Berkeley School of Law, and his M.A. and B.A. from the University of California, San Diego.
