In the wake of a dispute over marketing with the Consumer Financial Protection Bureau, Payactiv said Thursday that it’s eliminating some fees for its earned wage access services.

Payactiv’s dispute with the CFPB had festered for months before an agreement shielding the company’s earned wage access service from some potential enforcement actions was terminated last week. The company’s pact with the agency, signed in 2020, had given the earned wage access provider leeway with respect to the Truth In Lending Act and Regulation Z, which require the disclosure of loan costs.

In a statement on Thursday, the company said it was eliminating some fees on its services, including for ACH money transfers, and extending a prior decision in which it made some free during the COVID-19 pandemic.

Payactiv also explained in the statement how the CFPB objected in January 2021 to a statement in the company’s marketing material that described Payactiv’s EWA services as “CFPB-approved,” as opposed to stating that it "has an Approval Order from CFPB."

“Notably, this order was one of the first of its kind, so there was no precedent regarding how it could be described,” Payactiv’s CEO Safwan Shah said, via a spokesperson, in an email to Payments Dive. In response to a question, he said he didn’t think it was necessary for Payactiv to apologize. “There was no communication around an apology. This was uncharted territory not only for us, but for the CFPB as well. In other words, nobody knew what was really okay.”

In a brief interview, Shah said he hasn’t tried to reach out to CFPB Director Rohit Chopra to discuss his company’s situation but added, “We hope to continue to work with the CFPB. We are a company focused (on providing) access to money for underserved workers and so forth.”

The CFPB said in a June 30 statement regarding the termination that it had received requests for clarification from unspecified parties over an advisory opinion it issued concerning earned wage access products like those that Payactiv offers. The CFPB said it intends to give more guidance soon regarding how the definition of “credit” can be applied under TILA and Regulation Z.

Officials from the CFPB told Payactiv on June 3 that it was considering rescinding its deal because of public statements the company had made that wrongly implied that the Bureau endorsed its products. Payactiv notified the CFPB on June 21 that it was planning to modify its fee structure, which the CFPB said would have required a modification of the 2020 order. Instead, Payactiv requested the earlier order be terminated, the CFPB said.

“This should serve as a warning to all fintechs that receive advisory opinions, no-action letters or sandbox approvals from regulatory agencies to be careful how they describe these approvals,” Washington attorney Stephen Middlebrook said in commenting on the news development by email. “Regulators don’t want to see these programs which are designed to assist in compliance turned into advertising slogans and marketing campaigns.”

At issue is whether the salary advances Payactiv provides through its earned wage access services should be regulated as loans. That’s a position favored by consumer activists such as the Center for Responsible Lending and the National Consumer Law Center, which last year asked the CFPB to rescind its deal with Payactiv. 

“Data indicate that EWAs may put people into an even more extensive cycle of repeat reborrowing than traditional payday loans,” the nonprofits said in testimony before Congress last year. “The ‘typical’ frequency of use for those who use these products runs from 12 times per year on the low end to 120 at the high end, with most at or above 24 times a year.”

San Jose, Calif.-based Payactiv argues that the money being disbursed to workers isn’t a loan because it’s money they are accessing from earned wages. 

Their credit options are otherwise limited because of their low credit scores, according to Shah. “Many of our users would not qualify for good rates and EWA is a lifeline, a survival toolkit for them,” Shah said, adding that Payactiv doesn’t track credit scores itself. 

The average salary advance for users who tap Payactiv’s EWA services is $100, the company said.

“There is no interest rate,” Shah said, noting that there is no cost for the employee using the Visa debit card provided by Payactiv. “The money goes towards livelihood items like food, fuel, auto repair, bills like insurance, avoidance of overdrafts.”

Payactiv earns revenue by taking a slice of the interchange fee that is charged when the employee uses the card.

For now, the CEO expects his company’s services will be in more demand, given recent inflation. When asked about a possible initial public offering, Shah said: “For now, we seek to grow and be the best way for hard-working Americans to stay afloat in very tiring financial times.”

The CFPB declined to provide additional comment beyond its statement on Thursday.

By Jonathan Berr on July 5, 2022
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