CFPB
The Consumer Financial Protection Bureau (CFPB) today proposed an interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. The guidance will ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers. The CFPB also published a report examining employer-sponsored paycheck advance loans. The report finds that workers using these employer-sponsored products take out an average of 27 such loans per year and that the typical employer-sponsored loan carries an annual percentage rate (APR) over 100%.
“Paycheck advance products are often marketed to and designed for employers, rather than employees,” said CFPB Director Rohit Chopra. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”
“In recent years, workers have seen big increases in wages, but junk fees and high rates on financial products not only chip away at these gains – they take advantage of workers,” said Acting Secretary of Labor Julie Su. “As part of the most pro-worker, pro-union administration in history, here at the Department of Labor, we proudly support efforts by the CFPB to guard against predatory lending in the workplace.”
Almost three-quarters of workers receive their wages every two weeks or monthly. One major source of demand for consumer credit stems from the mismatch of when people receive compensation for the work they perform and when they incur expenses. While lenders have long offered credit for consumers to pay expenses in advance of a payday, a new market for paycheck advance products has emerged and is growing rapidly.
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