Illustration of coins streaming into three piggy banks.
Illustration: Christopher T. Fong/Protocol

Payday came early. Regulators were late.

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Monday: Earned wage access comes under fire, Capital One goes shopping for fintechs, and Zelle scams find a simple explanation.

Off the chain

For sale: one neobank, never used. American Challenger and Patriot National Bank called off their merger in the latest sign of trouble in the neobank business. American Challenger is now hawking its cost-saving technology and a catchy brand name, Cache.

— Owen Thomas (email | twitter)

Fast money

Federal and state regulators are taking a closer look at how to regulate a fast-growing fintech field, earned wage access. These products allow employees to obtain pay they have earned ahead of their regular payday. As the industry has grown, so has the debate about whether the products should be considered extensions of credit and regulated accordingly.

The Consumer Financial Protection Bureau is on the case. Tucked away in a recent announcement revoking a sandbox letter for EWA provider Payactiv was a warning that the agency would soon “issue further guidance.”

  • The termination of Payactiv's sandbox letter, which gave the company regulatory protection from key lending rules, came at the company's request. The firm said it wanted to make changes to its business strategy without incurring a lengthy review from the CFPB, though the CFPB had already told Payactiv it was considering terminating the letter as a result of public statements from the company “wrongly suggesting a CFPB endorsement.” A press release and a couple of blog posts by Payactiv referencing the CFPB now return errors or redirect to Payactiv’s homepage.
  • Payactiv said it was still pursuing a “collaborative relationship” with the CFPB. The CFPB did not comment on its plans for further guidance.

Industry officials say earned wage products are a cheaper alternative to payday loans. Some employers even see faster pay options as a recruitment tool.

  • Earned wage products are growing quickly. The research firm Aite-Novarica Group estimated that industry providers moved about $9.5 billion in pay in 2020. While the firm has not released updated figures, the firm says the number has grown significantly since then.
  • A November 2020 advisory opinion from the CFPB stated that employer-based earned wage access programs do not qualify as loans or credit so long as the “employee makes no payment, voluntary or otherwise, to access EWA funds,” among other criteria. Before that, then-CFPB Director Richard Cordray exempted employer-based earned wage access products from a 2016 rule on payday loans.
  • Consumer groups asked the CFPB to review the 2020 advisory last fall, saying that its definition of credit under the Truth in Lending Act could be used to justify classifying a wider range of EWA products as non-loans. The groups worry that fees could harm users.

The states are watching, too. Since early wage access involves pay, state wage and hour laws could shape which products are offered.

  • New Jersey, New York, South Carolina, Georgia, Utah, Nevada and North Carolina have each considered regulatory frameworks for the products.
  • Some within the industry have offered support for California's approach. In February, the state's Department of Financial Protection and Innovation issued a declaration that employer-based EWA provider FlexWage is not subject to licensing under its lending and deferred-deposit laws. The company requested the legal review.
  • The review set two standards to guide the designation that the product is not a loan: Employers provided funds in amounts that did not exceed earned but unpaid wages, and the fees charged by FlexWage did not suggest the product was designed to evade California’s lending laws. The regulator has also opened a rule-making process for the industry.

New regulation may not be a bad thing for the industry. "The main issue, regardless of which side you are on, is there is a lack of clarity," said Moorari Shah, a partner with the law firm Sheppard Mullin. "The regulators, the industry, the employers all acknowledge it: It is unclear how this should be treated."

— Ryan Deffenbaugh (email | twitter) and Veronica Irwin (email | twitter)


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Read more from Soul Machines

On the money

Politicians can accept crypto again in California. The state’s Fair Political Practices Commission voted unanimously to repeal a ban on crypto donations and adopt new rules for how to accept the funds.

On Protocol: Sam Bankman-Fried has a plan to partially bail out customers of Voyager. But Voyager’s attorneys are calling it a “low-ball bid.”

Zipmex has resumed withdrawals. The crypto exchange lifted a withdrawal block after about 48 hours, but is still restricting deposits, transfers and trades.

Capital One is going fintech discount shopping. Asked by analysts about potential fintech acquisition, CEO Rich Fairbank said on the company’s earnings call that “as the pricing has crashed in that marketplace, we continue to watch the market carefully.” The firm is an “ideal buyer for fintechs,” he said.

Investment bank Moelis & Co. has some crypto plans. Moelis is starting a group to focus on global blockchain deals.

Tesla recorded a $170 million impairment charge on its bitcoin holdings. The electric car maker also logged $64 million in gains from certain sales of its bitcoin holdings, the company said in its 10-Q filing with the SEC on Monday.


Zelle is attracting scammers because of the Willie Sutton effect. “They’re attracted to these apps like moths to a flame because there’s just so much money flowing through them and because transfers happen so quickly,” Matt Schulz, chief credit analyst at LendingTree, told CNBC.

Coming up

Visa and Fiserv both have earnings calls on Tuesday. Visa’s EPS forecast is $1.74, up from $1.49 in the same quarter last year. Fiserv meanwhile has an EPS forecast of $1.54, up from $1.37.

The Senate Committee on Banking, Housing, and Urban Affairs will have a hearing on discriminatory banking Tuesday. The hearing is titled “Fairness in Financial Services: Racism and Discrimination in Banking” and will feature witnesses from the Center for Responsible Lending and Center for Equal Opportunity as well as NYU professor Jacob Faber.

Shopify also has an earnings call on Wednesday. SHOP’s EPS estimate has dropped to - $0.1, after a reported EPS of $0.15 for the same quarter last year.

The Senate Banking Committee will also have a hearing on crypto scams and other risks Thursday. The Federal Trade Commission reported earlier this year that consumers lost over $1 billion between January 2021 and March 2022. And a CertiK report this month estimated over $2 billion has been lost due to fraud in DeFi and Web3 projects internationally in 2022 alone.


They created Digital People. Now they've made celebrities available as Digital Twins: Soul Machines is at the cutting edge of AGI research with its unique Digital Brain, based on the latest neuroscience and developmental psychology research.

Read more from Soul Machines

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