CFPB Proposes Interpretive Rule to Ensure Workers Know the Costs and Fees of Paycheck Advance Products

Regulatory Developments

CFPB Proposes Interpretive Rule to Ensure Workers Know the Costs and Fees of Paycheck Advance Products
On July 18, the CFPB issued an interpretive rule (Proposed Rule) applying the Truth in Lending Act and Regulation Z to earned wage access services, also known as on-demand pay services, including nonrecourse EWA services. To reach this outcome, the CFPB determined that such services are “credit” and that voluntary fees or charges, such as expedited delivery fees and tips, are “finance charges.” These novel interpretations depart from precedent, reverse the CFPB’s own recent positions, and buck the trend among a growing number of states reaching the opposite conclusion. In addition to affecting EWA services, the Proposed Rule may also have significant ramifications for other types of financial services.

Goodwin attorneys go more in depth on this topic in our recent client alert, here.

“Paycheck advance products are often marketed to and designed for employers, rather than employees. The CFPB's actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”
— Rohit Chopra, Director, CFPB

Agencies Issue Final Interagency Guidance on Reconsiderations of Value of Residential Real Estate
On July 21, the OCC, Federal Reserve, FDIC, NCUA, and CFPB published Interagency Guidance on Reconsiderations of Value of Residential Real Estate in the Federal Register, limited to real estate-related financial transactions secured by a single 1-to-4 family residential property, to highlight risks associated with deficient residential real estate valuations and provide descriptions and examples of how financial institutions might modify their risk management practices to incorporate processes and controls concerning “reconsiderations of value” in which a financial institution requests an appraiser or other preparer of valuation reports to reassess the report based on potential deficiencies or other information that may affect the value conclusion.

Agencies Adopt Final Rule on Quality Control Standards for Automated Valuation Models
On July 17, the OCC, Federal Reserve, FDIC, NCUA, CFPB, and FHFA adopted a final rule requiring banks that use automated valuation models (AVMs) in certain credit or securitization determinations to adopt quality control standards, including random sample testing and reviews, to ensure confidence in the estimates produced by AVMs, protect against data manipulation, avoid conflicts of interests, and promote compliance with applicable nondiscrimination laws. Without setting specific requirements on how to structure their quality control procedures, the final rule gives banks flexibility based on the size and risk of a bank’s transactions. The final rule becomes effective on the first day of the calendar quarter following 12 months after its publication in the Federal Register.

FinCEN Requests Feedback on BOI Data Collection
On July 23, following a 60-day notice for public comment on BOI requests, the Department of the Treasury, on behalf of FinCEN, published a 30-day notice in the Federal Register, seeking public comment on: (1) the information to be collected from certain authorized recipients requesting access to BOI from FinCEN, pursuant to the Beneficial Ownership Information Access and Safeguards Rule; and (2) FinCEN’s estimate of the burden involved in the information collection. Comments on the proposed information collection are due by August 22.

Agencies Propose Rulemaking for Anti-Money Laundering and Countering the Financing of Terrorism Program Requirements
On July 19, the OCC, Federal Reserve, FDIC, and NCUA issued a notice of proposed rulemaking that would amend rules implementing anti-money laundering and countering the financing of terrorism (AML/CFT) program requirements under the Bank Secrecy Act (BSA). The proposed amendments align with changes concurrently proposed by FinCEN as a result of the Anti-Money Laundering Act of 2020. Proposed changes include: (1) incorporating a risk assessment process that requires consideration of FinCEN’s national AML/CFT priorities; (2) added customer due diligence requirements; (3) amendments to codify supervisory expectations; and (4) encouraging banks to consider innovative approaches to meet their obligations pursuant to the BSA. Comments on the proposed rulemaking are due 60 days from publication in the Federal Register.

CFPB Issues Circular Warning Against Intimidation of Whistleblowers
On July 24, the CFPB issued Circular 2024-04 to remind regulators and the public that Section 1057 of the Consumer Financial Protection Act (CFPA) prohibits covered persons from terminating or otherwise discriminating against covered employees for engaging in whistleblower activity, including by imposing broad nondisclosure agreements or other agreements that contain confidentiality requirements that may intimidate employees or chill employee communication or cooperation with law enforcement regarding violations of consumer financial protection laws. The CFPB indicates that employers can mitigate their risk of violating the CFPA by, among other measures, making sure that employee agreements expressly allow employees to freely communicate with government enforcement agencies and to cooperate in government investigations.

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This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.