The CFPB Shifts Gears And Says Covered EWA Is Not Credit

Earned wage access products are not subject to the Truth in Lending Act or Regulation Z, according to the bureau.

In a move to end years of regulatory ping-pong, the Consumer Financial Protection Bureau issued a new advisory opinion on Earned Wage Access (EWA) products. The bureau’s primary determination is that “Covered EWA” — a narrowly defined category of products — does not constitute “credit” under the Truth in Lending Act (TILA) or Regulation Z.

For the accounts receivable management (ARM) industry, this clarity is welcome, but it comes with a significant caveat: the bureau is drawing a sharp line between “Covered EWA” and the more aggressive “payday app” models that ACA International has previously highlighted as a growing risk to consumers’ financial health.

The Anatomy of “Covered EWA”

To qualify for the non-credit designation, a provider must meet four strict criteria. These pillars are designed to ensure the product remains a functional equivalent of an employer simply paying a worker early for work already performed, rather than a traditional loan.

1. Strict Verification: The advance cannot exceed wages already earned, verified through actual payroll data — not estimates or consumer self-reporting.
2. Payroll Process Deduction: Repayment must occur before the paycheck hits the consumer’s bank account. This is a critical distinction, as it prevents the “double-dipping” or overdraft scenarios common in other models.
3. No Recourse: The provider must waive all legal or contractual claims against the worker if the payroll deduction fails. They cannot engage in debt collection, sell the debt, or report to credit bureaus.
4. No Underwriting: Providers cannot assess credit risk or pull credit scores on individual workers.

The bureau’s logic is that in these specific cases, a worker is “in effect, only using the [worker’s] own money” (quoting a 1981 Federal Reserve comment regarding pension loans).

Addressing the “Payday App Trap”

This new advisory opinion arrives just as data reveals the potential downsides of less regulated models.

As ACA recently covered in “The Payday App Trap,” research from the Center for Responsible Lending (CRL) indicates that heavy users of certain EWA apps paid an average of $421 in loan and overdraft fees over a single year.

The CRL study found that “stacking” — where consumers juggle multiple apps simultaneously — climbed from 16% to 42% over a 12-month period. This behavior creates a “paycheck squeeze” that complicates the work of ARM professionals. When multiple automated withdrawals hit a consumer’s account immediately after payday, liquidity for traditional debt obligations vanishes.

The CFPB’s new guidance addresses this by favoring models where the deduction happens via the payroll process itself. By diverting funds before they reach a transaction account, “Covered EWA” theoretically avoids triggering the 45% relative increase in overdraft incidence that researchers observed in direct-to-consumer app models.

What This Means for ARM Professionals

The CFPB’s shift toward a functional definition of EWA — prioritizing how the money is recovered rather than just the “employer-partnered” label — suggests a more nuanced regulatory environment.

For the industry, the implications are clear:

• Watch the Timing: Consumers using non-covered EWA apps may see their liquidity vanish within hours of payday due to automatic debits.
• Predicting Delinquency: Rising NSF fees remain a leading indicator that a consumer is caught in an EWA “cycle of reborrowing,” which may soon lead to defaults on traditional credit accounts.
• A Divided Market: We are likely to see a bifurcation in the market between “Covered EWA” providers who follow this new safe harbor and “Direct-to-Consumer” apps that may face ongoing scrutiny as high-interest payday alternatives.

The CFPB has made it clear that while Covered EWA is safe from TILA for now, they are “evaluating whether [to] take further legal steps” regarding products that don’t meet these strict standards. This is not a deregulation of the sector, but rather a strategic narrowing of the target.

Meanwhile, the CFPB’s advisory opinion on EWA and proposed changes to its final rule on small business lending signal some focus on its latest regulatory agenda.

The agenda, released in September 2025, features 24 items covering a spectrum of issues –from early-stage rules on identity theft and unfair, deceptive or abusive acts or practices (UDAAP) to final rules eliminating state enforcement notification requirements, ACA previously reported.

While items on federal agencies’ regulatory agendas often change, and federal discussions continue on the CFPB’s leadership and funding, they provide insights into future rulemaking priorities. ‘

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