By Tom Scanlon
General Counsel and Chief Compliance Officer
At-a-Glance
- On July 18, 2024, the Consumer Financial Protection Bureau (CFPB) released for public comment a new Interpretive Rule under the Truth in Lending Act (TILA) to promote price transparency for EWA (Earned Wage Access) products.
- Rain believes that, overall, the CFPB’s proposed Interpretive Rule is a healthy development for the ecosystem of EWA products.
- Nothing in the CFPB’s proposed Interpretive Rule affects an employer. TILA does not apply to the day-to-day business operations of an employer that uses an employer-integrated EWA solution, such as Rain’s EWA services.
- Compliance responsibilities under TILA for Rain’s employer-integrated EWA services will fall entirely to Rain.
The Proposed Rule and CFPB’s Goals
The Consumer Financial Protection Bureau (CFPB) has issued a request for comment on its proposed Interpretive Rule (Proposed Rule) relating to earned wage access (EWA) products under Regulation Z, which is the agency’s rule that implements the Truth in Lending Act (TILA). Specifically, the CFPB is proposing: first, to revoke the interpretive rule that the agency published on December 10, 2020 (2020 Rule); and, second, to “replace” the 2020 Rule with a new Interpretive Rule, after considering the comments submitted on the Proposed Rule.
Overall, the CFPB intends for the Proposed Rule to promote price transparency for consumers. As the CFPB’s Director Chopra explained in his Prepared Remarks announcing the proposal, the Proposed Rule intends to require EWA providers to provide cost disclosures to achieve two goals: (1) to help consumers “compare options” among different financing products; and (2) promote an EWA ecosystem in which providers “compete on clarity, not confusion.” Rain wholeheartedly supports the CFPB’s objectives of better serving consumers by helping them compare different EWA products—and easily understand the benefits of Rain’s employer-integrated EWA services.
CFPB’s Proposal Applies Broadly–But Based on a Narrow Set of Requirements
Breadth: In terms of its reach across the EWA market, the Proposed Rule is broad. The CFPB intends for its eventual final rule under TILA to apply across the board, regulating a wide range of EWA providers. Under the CFPB’s proposal, both employer-integrated providers and D2C (Direct-to-Consumer) providers would be subject to applicable cost-disclosure requirements.
Focus: The Proposed Rule also is narrow because the CFPB’s proposed shift in policy for EWA providers is limited to cost-disclosure requirements under Regulation Z. The Proposed Rule states, at the outset: “[The Proposed 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.’” As the CFPB’s Director Chopra explained: the Proposed Rule is designed so that EWA providers must provide cost disclosures that account for “incidental costs, even if the amount is variable,” in accordance with existing requirements—namely, the applicable requirements (i.e., those that apply to a provider’s particular EWA product) under Regulation Z and TILA.
The CFPB is not proposing a full scheme of rules intended for the agency’s oversight of EWA providers. Nonetheless, our regulatory team will monitor the agency’s rulemaking progress so that Rain can assess whether any other requirements could spill over from the CFPB’s eventual final rule under Regulation Z and TILA.
No Impact on Employers
The CFPB’s Proposed Rule does not affect employers using Rain’s EWA services.
TILA does not apply to an employer that uses an employer-integrated EWA solution, such as Rain’s services. As explained above, the Proposed Rule only aims to change the agency’s policy under TILA. Thus, the CFPB’s action does not impose obligations on an employer; all of the regulatory obligations for compliance with Regulation Z and TILA will fall to Rain.
Price Transparency for Users
Price transparency for Rain’s users always has been a core value for our company. Clear and straightforward pricing, in both our marketing towards users and in the Rain app, has been a constant feature in Rain’s offering and provision of earned wage payments.
Cost Disclosure Upfront: When a user opens a Rain account, the user will find an easy-to-read table of key terms and conditions on the first page of the standard contract. The table focuses on the costs and terms so that users can understand how Rain’s EWA product serves them. Specifically, the table clearly describes the amount of the fee, which varies by the type of transaction that the user chooses, and explicitly states the absence of any “tips” or hidden charges.
Cost Disclosure In the Rain App: For a typical user of the Rain app, the user first checks the amount of earnings that Rain is making accessible to them, based on data that Rain collects through its integration with the user's employer. If the user is requesting an earned wage payment, for some or all of that amount of earnings, the user is presented with a choice as to how to conduct that transaction. For each earned wage payment, the price of the transaction fee—including the fee of $0.00 when the user selects an ACH transfer—is clearly and prominently displayed prior to the time the user approves of the transaction.
Our commitment to price transparency for users is aligned with the Proposed Rule, and demonstrates our leadership in the EWA industry to “compete on clarity, not confusion,” as Director Chopra stated.
Safe and Predictable Financial Solutions
Rain’s EWA product remains a safe and predictable alternative to predatory lending. Rain is committed to providing a low-cost service that helps employees access their earned wages without falling into debt traps. Each earned wage payment is requested by the user on an as-needed basis, as the user chooses, and Rain’s earned wage payment is not subject to any late fee or add-on fee that might surprise the user.
More generally, Rain does not resort to a method of providing financial products or services to Rain’s users—who are the employees of Rain’s trusted employer-partners—by placing them in the awkward position of “tipping” the financial services provider. Who tips the teller at the bank when withdrawing funds from a checking account? The teller’s window does not have a tip jar. The same expectations should apply to EWA services. In this regard, Rain believes that the CFPB’s primary objective in issuing the Proposed Rule is to protect consumers from bad actors who mislabel credit products as EWA products. The direct-to-consumer providers typically engage in these types of practices, including by depending on “tips” for revenue. For this reason, Director Chopra went out of his way to declare that the agency “is paying close attention to illegal tricks on tips.”
Staying Ahead with Strategic Compliance Management
Rain is prepared to meet the emerging requirements of Regulation Z, as will be further clarified in the CFPB’s eventual, final interpretive rule. Our regulatory team monitors the development of regulations that affect EWA products and services so that Rain’s services can satisfy those requirements and serve the needs of Rain’s users.
Conclusion
Overall, the Proposed Rule is a positive step in the development of requirements under Regulation Z TILA for the ecosystem of EWA products. Rain supports the Bureau’s goals for disclosure standards under TILA so that consumers can compare different EWA products—and easily understand the benefits of Rain’s employer-integrated EWA services. Moreover, the Proposed Rule does not create any new risks to Rain’s employer-partners.
Meet Our In-house Regulatory Expert
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.
