CFPB official says pay advance products may be loans

CFPB official says pay advance products may be loans
Written by Publishing Team

  • Consumer groups say Trump-era guidelines have been misused
  • The General Counsel says the agency should clarify the situation

(Reuters) – An official at the US Consumer Financial Protection Bureau indicated that the agency is reconsidering its Trump-era guidance on prepaid companies, saying some of its products may be loans.

Acting General Counsel Seth Frutman said in a letter to consumer advocates Tuesday that a legal opinion exempting some Earned Wage Access (EWA) products from the lending regulation has created “significant confusion.” The products allow employees to cash out the wages they earned before payday.

Some EWA companies work with consumers directly, while others provide their services through employers including Walmart and PayPal. The companies describe themselves as a sustainable alternative to high-interest payday loans and bank overdrafts.

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The CFPB said in 2020 that products offered free of charge through an employer should not be regulated as consumer credit under the Truth in Lending Act. Consumer advocates called for the opinion to be rescinded, arguing that regulating products as credit would protect consumers.

In his letter on Tuesday, Frutman said the products may be fiduciary under other state and federal laws. He wrote that EWA products that charge fees or require voluntary “gratuities” may also be loans under TILA.

Frutman said he will ask CFPB Director Rohit Chopra to clarify the agency’s position.

The letter came in response to consumer advocates in New Jersey who said the CFPB’s opinion was being used to defend the EWA’s exemption from the state’s interest rate limits.

Read more: Consumer advocates urge CFPB to rein in prepaid companies

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Judy Godoy

Judy Godoy Report on Banking and Securities Law. You can reach her at


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