Arizona Attorney General Mark Brnovich released opinion No. 22-(R22-011), concluding earned wage access (EWA) products that are fully non-recourse and no-interest are not “consumer lender loans” under Arizona law. Thus, those who make, procure, or advertise EWA products are not required to be licensed as a “consumer lender” by Arizona’s Department of Insurance and Financial Institutions. The AG’s findings apply to EWA providers working with an employer as well as those working directly with an employee.
According to the AG, an EWA product is fully non-recourse if the provider does not:
- Obtain a legal, contractual right to repayment against the employee,
- Engage in any debt collection activities on any unpaid balance,
- Sell or assign an unpaid balance to a third party, and
- Report non-payment to any consumer credit reporting agency.
The AG also concludes that a no-interest EWA product is one that does not impose a finance charge under Arizona law, although certain fees are permitted. The AG suggests such fees could include a voluntary gratuity, a fee for expedited transfer of an EWA payment, or the earning of interchange revenue from money spent using a payment card.
A consumer lender license is required to engage in lending in Arizona. A consumer lender is any person or entity advertising to make “consumer lender loans” to consumers, which are broadly defined under Arizona law as lending money to consumers in various contexts.
The AG states that EWA products are not a “loan of money” because an EWA product that is non-recourse is “neither for the employee’s temporary use, nor is there a condition that the funds shall be returned.” Rather, EWA products provide employees with funds that they have already earned and need not be returned to the provider. Additionally, the AG believes an EWA product does not impose finance charges since a non-recourse EWA product requires only repayment of a principal balance, which is not an amount payable incident to or as a condition of a consumer lender loan. The AG noted that some EWA products may charge a fee; however, as long as any fees are included in the exceptions in the finance charge definition, a provider would not be considered to have imposed a finance charge.
The AG references several other decisions informing his analysis. A Consumer Financial Protection Bureau (CFPB) advisory opinion, published on December 10, 2020, concluded that certain EWA products provided through an employer without charging the consumer a fee did not constitute “credit” under the Truth in Lending Act. The CFPB’s advisory opinion, however, was issued under the agency’s prior director, Kathy Kraninger. The CFPB, under its current director, initially cast doubt on the advisory opinion’s validity in a January 18, 2022 letter to consumer advocates, and later rescinded the advisory opinion on June 30, 2022. These recent actions regarding EWA products indicate the CFPB may reach a different conclusion than the Arizona AG, especially since concluding that EWA products are not extensions of credit would place them outside of the CFPB’s jurisdiction.
The AG also relies on the CFPB’s 2017 Payday Lending Rule as well as a California Commissioner of Financial Protection and Innovations’ 2022 opinion that concluded that when an EWA provider works directly with an employer to allow employee access to an EWA product, the EWA product is not a “loan” under California Financial Code § 22009.
In a May 2022 blog post, we discussed the U.S. Department of Treasury’s proposed amendments to the Internal Revenue Code clarifying that EWA products, offering on-demand pay, are not loans.
Troutman Pepper will continue monitoring developments affecting EWA programs and reporting on any relevant updates.