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Consumer Credit Regulation: 9.6.4 Spurious Open-End Credit

Some lenders claim to structure their payday loans as lines of credit to avoid restrictions on closed-end credit, such as state small loan statutes, the pre-2017 regulations under the Military Lending Act (MLA),1039 or the stricter disclosure and APR calculation rules for closed-end credit under the Truth in Lending Act. Some small loan laws only apply to closed-end credit.

Consumer Credit Regulation: 9.7 Litigation Issues

Successful litigation against payday lending will often require a combination of resources and will typically require overcoming some of the same obstacles found in other consumer protection litigation. Arbitration clauses and class action waivers are common in payday loan contracts but they should not be considered insurmountable barriers to helping borrowers.

Consumer Credit Regulation: 9.8 Local Ordinances

In states where payday lending is legal, local governments may have authority to regulate the location and operating hours of storefront payday lenders.1097 A significant number of cities and some counties have adopted ordinances restricting the density, business hours, and location of payday lenders.1098 Others have adopted temporary and permanent moratoriums on permits for new locations.1099 Land use regulations limiting density may be espe

Consumer Credit Regulation: 9.10.1 What Are EWAs?

Earned wage advances (EWAs), often called earned wage access programs by industry, allow an employee to take an advance on wages that have been earned but are not yet due, ahead of the scheduled pay date. True EWA programs operate through an agreement with the employer or payroll provider, but there are also fake EWA programs that are direct-to-consumer and are not integrated with payroll.

Consumer Credit Regulation: 9.10.2 Application of Wage and Hour Laws to EWAs

The federal Fair Labor Standards Act requires employers to pay their employees the federal minimum wage.1126 Deductions from employees’ paychecks that, for whatever reason, bring the employees’ pay under the minimum wage violate the FLSA.1127 An employer that deducted EWA fees or obligations from workers’ paychecks, thereby reducing their pay below the minimum wage, would likely be in violation of t

Consumer Credit Regulation: 9.10.3 Application of Wage Assignment Laws to EWAs

EWA providers are very likely to rely on a wage assignment. If the provider disburses the funds to the consumer, it will in all likelihood require the consumer to assign at least a portion of the consumer’s unpaid wages to it to repay the advance. The agreement may phrase the assignment in obscure language and deny being a wage assignment, but the agreement should be examined closely to determine if the effect is a wage assignment.1134

Consumer Credit Regulation: 9.10.4.1 Introduction

Every state has at least one statute or constitutional provision that regulates non-bank loans. In a given state, there may be several lending laws that may apply to an EWA transaction. First, most states have a statute—often termed a small loan act or installment loan law—that applies to non-bank lenders.1148 In almost all of the states, this law caps the interest and fees that lenders may charge.

Mortgage Lending: 9.3.5 Limits As to DIDA Preemption for Manufactured-Home Credit

DIDA first lien preemption only applies to a manufactured-home loan or credit sale if the credit transaction complies with certain federal consumer protection regulations.91 These regulations govern the refund of pre-computed finance charges; prepayment penalties; late charges; deferral fees; balloon payments; and the consumer’s right to notice before repossession, foreclosure, or acceleration.92

Consumer Credit Regulation: 9.10.4.4.1 Interpreting the language of the state lending law

Some state lending laws use the term “debt” to define the term “loan.” For example, the Uniform Consumer Credit Code, upon which many states’ lending laws are based, has a broad definition of “loan” that includes “the creation of debt by the lender’s payment of or agreement to pay money to the debtor or to a third person for the account of the debtor.”1204 Eleven states have enacted this provision verbatim or almost verbatim in their installment loan laws.

Consumer Credit Regulation: 9.10.4.5 “It’s the Consumer’s Own Money”

Another argument sometimes made to support the claim that EWAs are not credit is that their wage advances are not loans because consumers are merely accessing their own money.1247 EWA fees have been analogized to ATM fees. But many other types of loans, such as home equity loans or pawn loans, are made against an asset the consumer already owns and merely facilitate access to the value of that asset.

Consumer Credit Regulation: 9.10.4.6 State Payday Loan Laws

Most state payday loan laws apply only where the lender takes a post-dated check or ACH authorization as part of the transaction. An EWA program that relies on payroll deduction or offsetting incoming direct deposits as the method of repayment is unlikely to fall within the scope of the state payday loan law. However, some EWA programs require the consumer to give it a post-dated authorization to debit the bank account into which the consumer’s wages will be deposited.

Consumer Credit Regulation: 9.10.4.7 Legal Interest Rate Statutes

The state installment loan laws and payday loan laws discussed in the preceding sections regulate specific types of non-bank lenders. Whether or not such a statute applies to an EWA provider, the state may have a general usury statute or a legal interest rate statute that applies.

Consumer Credit Regulation: 9.10.4.9 State Laws and Regulations Specific to EWAs

In March 2023, California’s Department of Financial Protection and Innovation (DFPI) proposed new rules to regulate EWAs. The proposed rules clarify that EWAs are loans, and EWA providers must register and report data,1257 However, DFPI gave providers of certain income-based advances a temporary, four-year reprieve from full licensing and compliance with the small loan act.

Consumer Credit Regulation: 2.2.7.2 Constitutionality of Appointment and Limits on Removal of the CFPB Director

The statute creating the Consumer Financial Protection Bureau (CFPB) provides for a single Director appointed by the President of the United States for a term of five years.215 The statute provides that the Director may be removed only for cause for inefficiency, neglect of duty, or malfeasance in office.216 Since 2012, there have been three significant legal challenges concerning the CFPB Director.

Consumer Credit Regulation: 2.2.7.3.1 CFPB UDAAP rulemaking activity

The Dodd-Frank Act gives the CFPB authority to write rules to prevent unfair, deceptive, or abusive acts or practices (UDAAP229 authority) in connection with a broad array of consumer financial products and services.230 The CFPB has issued one final rule using its UDAAP authority—its regulation on payday, vehicle title, and certain high-cost installment loans—which occurred under Director Cordray.231