Client Alert: Adverse Court Rulings Against Non-Recourse Advance Providers Suggest a Changing Tide
In recent months, several courts across the country have issued rulings adverse to earned wage access (“EWA”) providers. This trend may also implicate other products with similar features to EWA, such as business-purpose nonrecourse advances made to independent contractors. Specifically, courts have issued opinions in the following matters interpreting nonrecourse EWA products to plausibly constitute credit under the Truth in Lending Act (“TILA”) and Regulation Z, as well as state loan laws:
Moss v. Cleo AI Inc., No. C25-879-MLP, 2025 U.S. Dist. LEXIS 174845, 2025 WL 2592265, at *1 (W.D. Wash. Sept. 8, 2025).
Golubiewski v. Activehours, Inc., No. 3:22-cv-02078-KM, 2025 U.S. Dist. LEXIS 167308, 2025 WL 2484192, at *18-19 (M.D. Pa. Aug. 28, 2025).
Johnson v. Activehours, Inc., No. 1:24-cv-02283-JRR, 2025 U.S. Dist. LEXIS 152809, 2025 WL 2299425, at *1 (D. Md. Aug. 8, 2025).
Orubo v. Activehours, Inc., 780 F. Supp. 3d 927, 927 (N.D. Cal. 2025).
These cases have been brought by class action firms seeking to challenge EWA products as usurious loans that violate state and federal law. Thus far, the federal rulings have come from trial courts in response to early motions to dismiss, meaning that they generally only assert that EWA has plausibly been alleged to constitute loans by plaintiffs and are not definitive rulings that the product is, in fact, credit. Nonetheless, these rulings and the language being employed by courts indicate a trend toward viewing the legal and regulatory underpinnings of nonrecourse products with skepticism and an inclination toward classifying them as mere payday loans.
These rulings stand in contrast to the wave of state legislatures enacting legislation declaring such products as non-credit products exempt from state lending laws. However, most states have yet to pass EWA-specific laws. While it is unclear whether these decisions will change the approach of state financial services agencies or attorneys general in such states, in the very least the trend is likely to encourage further class action and mass arbitration activity.
In light of the escalating litigation (and, possibly, state enforcement) risk faced by nonrecourse advance products, providers in this sector should consider whether action is warranted. These actions may include:
Considering whether the risk of doing business in certain jurisdictions now exceeds the company’s risk tolerance.
Revisiting customer service, fee and repayment policies to ensure they are customer friendly—particularly those related to refunds, the assessment of fees and changing or revoking repayment authorizations—to control complaint volume.
Considering whether voluntary compliance with TILA and Regulation Z, as well as the Military Lending Act, is warranted. Voluntary compliance, rather than compliance compelled by a regulator or as the result of litigation, may permit companies to implement federal credit laws in less disruptive and burdensome ways.
Evaluate whether product lines should be diversified to include credit products subject to well-established state and federal regulatory regimes, such as lines of credit or single-installment loans. Diversification can help hedge against risk of sudden changes to the regulatory landscape surrounding EWA and similar products.
For questions please do not hesitate to contact Chris Napier and Shelby Schwartz.
Download a PDF of this article here.
About The Authors
Chris Napier is a Partner at Mitchell Sandler. His practice focuses on providing regulatory counseling, strategic advice and representation during government enforcement matters, including matters involving commercial, consumer and alternative credit products; money transmission and payments; deposit issues; and partnerships between fintech companies, depository institutions, and lenders.
Shelby Schwartz is Counsel at Mitchell Sandler. Her practice focuses on financial regulatory and compliance matters, with a concentration on deposit accounts, financial data privacy, and state lending laws. She advises a wide variety of financial services providers, from banks to financial technology companies. Shelby has successfully assisted clients in responding to regulatory inquiries and enforcement matters, including those brought by the Consumer Financial Protection Bureau, the Department of Justice, and various state regulators. She regularly assists clients in assessing their deposit account fee structures and deposit account agreements, analyzing data breach obligations, developing privacy policies, and developing financial products and services within appropriate regulatory models.
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