The Consumer Financial Protection Bureau (CFPB) has, in recent years, issued non-binding rules, guidelines, and advisory opinions. As an early example, in 2017, then-CFPB Director Richard Cordray exempted employer-sponsored Earned Wage Access (EWA) Programs from his 2017 small-dollar credit rule, explaining that this was done to “exclude from coverage some new ‘fintech’ innovations, such as certain no-cost advances and programs to advance earned wages.”
In 2020, then-Director of the CFPB Kathy Kraninger expanded on Cordray’s work by issuing an AO explaining why eligible EWA programs do not constitute credit. Similarly to the cash value of a consumer’s insurance policy or pension account, the CFPB rules that an employee’s earned but unpaid wages are their own money. To add, the current Democratic administration made it crystal clear that “on-demand pay arrangements are not loans” in President Biden’s budget proposal earlier this year.
It is an understatement to say that the previous Directors laid the groundwork for the growth of EWA programs, which are used by an estimated 55 million people in the United States. During one of the most difficult periods for our country’s health and economy, these products have helped people in need gain access to money they have earned but not yet received.
This case exemplifies the benefits to the American public when a given agency’s regulations, advisory opinions, and guidance remain stable even after a change in administration.
Last month, CFPB Director Rohit Chopra wrote on his blog that markets function most effectively when the rules are simple and straightforward. Director Chopra has promised to significantly increase the amount of guidance [the CFPB] is providing to the market as part of his effort to simplify and clarify regulations. Establishing clear, easy-to-implement rules that last across administrations and changes in CFPB leadership is, I think we can all agree, the best way to protect consumers and help the industry provide innovative, useful products.
In contrast, Director Chopra’s statement that the “CFPB aspires to more clearly communicate the agency’s expectations” in his blog post indicates a shift toward a greater reliance on guidance. This modification, along with the use of vague terms like “aspire to” and “expectations,” can sow the seeds of doubt.
I think it’s important for all regulatory bodies to periodically check the accuracy of their rules, guidelines, and opinions by conducting reviews, but these audits should be done methodically and openly. The Director’s stated goal of attempting to ensure the rules are simple and clearly understood would be severely undermined if he chose to only regulate via guidance without any kind of public scrutiny.
The Consumer Financial Protection Bureau has been seen as partisan since its inception. However, the banking and insurance sectors cannot afford such a luxury. All regulations issued by the Consumer Financial Protection Bureau and other prudential banking regulators must be followed, regardless of whether or not the industry agrees with them (FDIC, OCC, etc.).
There is a section titled “Rescission of Advisory Opinions” in the CFPB’s final Advisory Opinion Policy, but it does not specify how a previously implemented and relied upon policy can be rescinded.
Rules that are consistently enforced benefit both the industry and consumers by allowing the former to anticipate the market and the latter to rest easy knowing that the products they rely on will be available for the foreseeable future. To be sure, you don’t have to take my word for it; many consumer groups, including the National Consumer Law Center, have stressed the importance of consistency and transparency.
My colleagues and I share the Director’s commitment to the CFPB’s mission of consumer protection. However, before Director Chopra takes any regulatory action to rescind, amend, or improve the 2020 EWA Advisory Opinion, I would like to request a meeting with teams like mine and other leaders in the EWA community. The two of us have a common goal of reducing regulatory burdens and bolstering consumer protections while minimizing the impact on the economy and the market would benefit greatly from a face-to-face meeting to discuss potential strategies.
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