United States: DFPI Approves EWA Provider
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On February 11, the California DFPI issued a opinion letter in response to an EWA vendor’s request for a specific ruling from the DFPI on whether the company’s EWA solution is subject to licensing under California Finance Laws (CFLs) and California Deferred Deposit Transactions (CDDTL). In response, the DFPI concluded that the provider does not initiate or facilitate loans subject to the CFL or CDDTL, and that neither the provider nor its employer partners are subject to the licensing requirements of the CFL or CDDTL.
DFPI relies on two elements necessary to reach its conclusion as to the applicability of the CFL and CDDTL: (1) the funds come from the employer, not the supplier, and these funds do not exceed the amount that the employer owes a beneficiary; and (2) the fees charged do not suggest that the product circumvents California loan laws.
- With respect to the first element, the payment to the employer satisfies part of an existing financial obligation of the employer to the employee, rather than the employee agreeing to reimburse his employer for the amount received.
- Regarding the second element, the DFPI notes that the typical user receives $184 for each advance, and that the maximum fee for each advance is $5. This fee is significantly lower than the 5% administrative fee a licensee might charge under Cal. Fin. Code § 22305. Thus, the cost of an EWA does not suggest CFL evasion.
Put into practice : EWA vendors operating in California should note that this vendor’s model was approved based on the specific facts presented to the DFPI. Other vendors with seemingly similar models should take the opportunity to discern the differences between their models and the model approved here to avoid future requests from the California regulator (we have discussed regulatory responses to solutions EWA in previous Consumer Finance and FinTech blog posts here and here).
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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