Payactiv’s Earned Wage Access (EWA) program is exempt from federal lending law under new Consumer Finance Protection Bureau (CFPB) rules, according to a press release.
The CFPB has ruled that the EWA program is not credit and therefore does not have to comply with the Federal Truth About Lending Act (TILA) and the Rules of Regulation Z, which govern creditors, says the press release.
The CFPB noted that the Payactiv EWA does not create debt because “the accumulated cash value of an employee’s earned but unpaid wages is their own money,” the statement said.
Payactiv CEO and co-founder Safwan Shah called the approval a “watershed moment.”
“We are very proud that CFPB has recognized this important innovation and validated Payactiv’s pioneering work in creating employer-sponsored access at low or no cost,” Shah said in the statement. “Employers can take comfort in knowing that Payactiv continues to be the leader in responsible EWA for employees. “
The CFPB approval order noted that the EWA program is innovative because it helps “consumers close the paycheck gap,” although it differs from normal programs that the CFPB would consider credit.
“Payactiv recovers the corresponding EWA amounts via employer-facilitated payroll deductions” and does not “request reimbursement from an employee directly or via a payment authorization to the employee’s account,” the order states.
The CFPB recently clarified its position on EWA programs and said they were not considered credit extensions.
Earned wages or on-demand payroll access is typically used by companies to allow workers to access their payroll before the scheduled payday. Solutions can include variations on payday loans, sliding fees, fixed fee agreements or interest payments, PYMNTS reported.
The CFPB cited data from the Bureau of Labor Statistics which showed that two-thirds of private U.S. companies use biweekly, biweekly, or monthly pay periods. But “the time gap between hours worked and receiving a paycheck can contribute to employee financial distress.”