On February 26, 2021, Georgia introduced HB 674, which empowers Earned Loan Access (EWA) providers to operate in the state and avoid loan characterization by meeting certain requirements, including registration.
This is the latest move in an active field in recent months at both the state and federal levels. The bill would add a new article to the Georgia Financial Institutions Code covering a “service provider for access to earned wages” defined as “any person engaged in providing earned but unpaid wages or income to a consumer” the state of Georgia.
The bill follows efforts by the Consumer Financial Protection Bureau (CFPB) and certain states to clarify whether EWA services will be regulated as “credit” or “loan”. In November 2020, the CFPB issued an opinion that EWA programs that meet certain conditions are not a “credit” under Regulation Z, followed by a sandbox approval regulation to support compliance, which was sent to an EWA provider in December was granted.
At the state level, the California Department of Finance and Innovation was active and signed letters of intent with five EWA companies in January 2021 with the promise that more will follow. EWA legislation is pending in New Jersey and South Carolina, which was introduced in February 2021 and is very similar to Georgian legislation.
EWA vs. Loans
Georgia consumer credit laws would not apply to EWA providers who meet the requirements of the bill. The draft law states that EWA services are “not to be considered as lending” under the chapter and such EWA payments are “not to be considered as loans granted by the provider of access to earned wages to a consumer”.
In addition, a fee for EWA services would not be viewed as interest on such earned wage access payments and would not be included in determining an interest rate to comply with a law that a provider may otherwise be required to comply with. “”
Employer-based programs only
The bill only covers EWA services offered by a “debtor” – an employer or other person who is contractually obliged to pay a consumer “any amount of money on an hourly, project, piece-rate or other basis” for work or to pay for services. Direct-to-consumer models are not covered.
The invoice would require the EWA provider to enter into a contractual agreement with an employer in which:
- The provider verifies the wages / income of a consumer using data from the employer, which relates directly to the consumer’s income in the respective payment period. and
- Funds will be served to the consumer prior to the consumer’s regular pay plan and will be deducted from the consumer’s next regular paycheck by the employer.
An employer is prohibited from disclosing consumer wage / income data to an EWA provider unless (i) there is a contractual agreement and (ii) the consumer agrees to the disclosure of this information in advance.
fees
A provider may charge fees for an EWA transaction and deduct those fees from the consumer’s next regularly scheduled paycheck subject to the following conditions:
- The fees must be communicated to the consumer in writing (i) prior to the conclusion of the EWA transaction and (ii) at the time of the EWA transaction.
- At the time of the EWA transaction, the provider must obtain written consent from the consumer to deduct the EWA payment and any applicable fees from the consumer’s paycheck.
- The provider must actually inform the consumer that the EWA service is optional by informing the consumer in writing of the right to receive the full amount of his paycheck without any discount in the normal course if the consumer waits until the next regularly scheduled payment date .
The bill’s fee approach differs fundamentally from the criteria set out in the CFPB’s November opinion that “no voluntary or other payment” is required to access EWA funds or use EWA services to obtain a “covered.” EWA program “which does not fall within the scope of the” credit “definition of Regulation Z.
Registration
The draft law stipulates that EWA providers must register with the Georgian Ministry of Banking and Finance and meet a binding obligation in order to operate in the state.
complaints
The draft law also provides that a consumer who has been harmed by an EWA provider can submit a complaint to the Georgian Ministry of Banking and Finance, which will be reviewed and investigated if necessary.
We expect other states to adopt EWA legislation and will monitor developments on that front closely as they unfold.
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