California Finalizes Registration Requirements for Providers of Earned Wage Access, Other Financial Products and Services | Consumer Finance Monitor

On October 11, California’s Office of Administrative Law (“OAL”) approved the Department of Financial Protection and Innovation’s (“DFPI’s”) registration rulemaking for providers of the following products:

These requirements will go into effect February 15, 2025, after which only registrants, applicants for registration, and exempt entities will be allowed to provide or offer to provide the subject products to California residents. The final rule is the culmination of an effort that began with initial proposed regulations in April of 2023 and included a disapproval decision by the OAL of an earlier version of the regulations.

The DFPI was empowered to create these registration requirements by California’s Consumer Financial Protection Law (“CCFPL”), which was signed into law by Governor Newsom on September 25, 2020. The CCFPL provides that the DFPI may “prescribe rules regarding registration requirements applicable to a covered person engaged in the business of offering or providing a consumer financial product or service,” but not for “[a] covered person who is licensed by the department under another law and who is providing a financial product or service within the scope of that license.” Cal. Fin. Code § 90009(a). Because the DFPI states in the final rule that, for instance, EWAs are loans subject to the California Financing Law (“CFL”) and providers of EWAs are finance lenders under the CFL, the CCFPL necessitates that the rule include a number of exemptions for providers offering these products within the scope of another California license, including the following:

While the rule states that the DFPI’s determination that providers must register does not constitute a determination that other licensing laws do not apply, registered providers of compliant EWAs are specifically exempted from CFL licensing. Notably, the initial proposed rule required that, in order for registered EWA providers to qualify for this licensing exemption, they had to meet the charge limitations of the CFL (with “charges” defined broadly to include expedited funding fees, subscription fees, and tips). In the Final Statement of Reasons, the DFPI explained that it removed the CFL rate caps for EWAs “to address procedural concerns related to economic impact[.]” A similar provision was not removed for registered providers of education financing with income-driven repayment provisions (including ISAs), who still must limit charges to what is allowed in the CFL in order to be exempt from licensure. Cal. Code Regs. Tit. 10 § 1462.5(a)(3).

Another notable change made during the rulemaking process was to the registration trigger: the initial proposed regulations required registration of those engaged in the business of “offering or providing subject products,” while the final rule limits the registration requirement to those engaged in the business of “offering to provide or providing subject products.” Cal. Code Regs. Tit. 10 § 1010(a) (emphasis added). This is a subtle change with potentially large ramifications, particularly when one entity offers a subject product that another entity (who may be exempt from registration) will be providing. For example, the CCFPL does not apply to state-chartered banks or national banks. Cal. Fin. Code § 90002(c); Cal. Fin. Code § 90002(b)(7). If an EWA product is offered by a fintech but provided by the fintech’s bank partner, then the registration trigger does not seem to have been met for either entity (i.e. because the bank is exempt and the fintech is not “offering to provide” the product). The Final Statement of Reasons, however, seems to hint that the DFPI may have a broader interpretation of this language in mind:

Whether a person is [subject to registration] is fact specific. Section 1010, subdivision (a), is intended to ensure that all companies that hold themselves out as offering or providing subject products are subject to regulation. The regulation is not intended to require marketing firms, newspapers, and other advertisers that advertise [subject products] on behalf of a…business and who do not own or control the activities of the…business to register under the CCFPL.

The DFPI recently announced that it is soliciting comments on what other industries it should establish registration requirements for under the CCFPL. Comments are due by December 12.