Arizona Attorney General Mark Brnovich released an opinion No. 22-(R22-011), end pay available (EWA) products that are not fully utilized and have no interest are not “consumer loans” under Arizona law. Therefore, those who make, sell, or distribute EWA products are not required to be licensed as a “financial broker” by the Arizona Department of Insurance and Financial Institutions. The AG’s findings apply to EWA services that work with an employer as well as those that work directly with an employee.
According to the AG, an EWA product is completely useless if it does not:
- Obtain a legal right, contract to reimburse the employee,
- Participate in any debt collection activity on any outstanding balance,
- Sell or transfer an unpaid balance to a third party, and
- Report the default to any credit reporting agency.
The AG also concludes that an interest-free EWA product is a product that does not incur a financial charge under Arizona law, even though additional payments are allowed. The AG said that such fees could include a free offer, a fee for expediting the payment of EWA, or receiving income from expenses using a payment card.
A moneylender’s license is required to lend money in Arizona. A moneylender is any person or organization that makes “consumer credit” to consumers, which is broadly defined in under Arizona law of lending money to consumers in different situations.
The AG said that EWA’s products are not a “loan of money” because an EWA product that is no longer available “is not for the temporary use of the employee, nor is there a provision to the money must be returned”. Instead, EWA’s products provide employees with money they have already earned and do not need to return to the company. Additionally, the AG believes that an EWA product does not make financial payments since a non-repayable EWA product only requires repayment of a principal balance, not an amount. can be paid with or as a condition of a consumer loan. The AG noted that some of EWA’s products may be subject to a fee; however, as long as any fees are included in the exemptions in the financial statement, the company will not be considered to provide a financial payment.
The AG refers to other decisions to inform its findings. A Consumer Financial Protection Bureau (CFPB) proposal. thought, published on December 10, 2020, concluded that some of EWA’s products were provided through an employer without paying the customer a fee that was not ” credit” under the Truth in Lending Act. The CFPB’s advisory opinion, however, was issued under the agency’s former director, Kathy Kraninger. The CFPB, under its current administration, first expressed doubt about the effectiveness of the advisory opinion on January 18, 2022. book to customers, and finally cancel the advisory opinion on June 30, 2022. These recent actions regarding EWA products indicate that the CFPB may reach a different decision than the Arizona AG, especially since the end of the products EWA’s are not credit extensions that would place them outside of the CFPB’s jurisdiction.
The AG also relies on the CFPB’s 2017 Payday Lending Rule as well as the California Commissioner for Financial Protection and Reform’s 2022. thought concluded that when an EWA company works directly with an employee to allow the employee to obtain an EWA product, the EWA product is not a “loan” under of California Financial Code § 22009.
In a May 2022 blog polewe discussed the US Department of Treasury amendments to the Internal Revenue Code to clarify that EWA products, offered on request, are not loans.
Troutman Pepper will continue to monitor developments affecting the EWA program and report on any necessary updates.