WASHINGTON, DC – The Consumer Financial Protection Bureau (CFPB) today issued a proposed interpretive rule that will ensure important legal protections for consumers who use fast-growing wage advance loan products. The proposed rule clarifies that so-called earned wage advance (EWA) products are loans, and that many tips and fees, like expedited delivery fees, are finance charges under the federal Truth in Lending Act (TILA) that must be disclosed to borrowers.

The proposed rule will promote consistent regulatory treatment of these financial products and help regulators hold wage advance lenders accountable for meeting their obligations under existing federal lending regulations designed to protect consumers. Improved regulatory oversight will reduce the financial instability these products – particularly direct-to-consumer advances – create for low- to moderate-income consumers already struggling to meet their daily living expenses.

“The CFPB has provided much-needed clarity that existing federal consumer protection laws, like TILA, apply to wage advance products,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending (CRL). “This guidance will require EWA lenders to include all costs in the price of credit, promoting fair competition that will allow consumers to comparison shop for the best deal.”

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%.

A recent CRL study that included users of the five leading direct-to-consumer lenders – Brigit, Cleo, Dave, Earnin, and FloatMe – showed the long-term negative financial impacts of these products on struggling, often underpaid working Americans. The first-of-its-kind study found that most direct-to-consumer wage advance users experienced increased checking account overdrafts; reported repeated use of advances, including from multiple lenders, during a pay period; and paid excessive – often hidden – junk fees for loans with APRs as high as 367 percent.

Chabrier said many of these direct-to-consumer wage advance products are the same predatory payday loans of the early 1990s, dressed in a new “fintech” veneer using mobile phone-based applications instead of brick-and-mortar storefronts. She added that regulations to protect consumers who take out wage advance loans are clearly within CFPB’s legal authority. The agency first proposed a rule for a different paycheck advance product, no longer offered in the marketplace, in 2020 during the administration of President Trump. CFPB said it will accept public comments on the proposed rule until August 30.

“CFPB’s proposed rule will prevent less responsible nontraditional and high-cost lenders from enticing consumers into a debt trap using false promises, hidden fees and misinformation,” said Chabrier.

Background

Earned wage advances (EWA) and cash advance products are small, short-term loans that typically are repaid on the borrower’s next payday. Consumers access these products using an app on their smartphone by linking their bank accounts or by enrolling through their employer.

The costs of these very short-term loans are not always transparent to consumer, who often pay fees and leave tips to access money and run the risk of unexpected overdraft fees. Workers who already are living paycheck-to-paycheck frequently find themselves pulled into a cycle of reborrowing that depletes their net earnings and further eroded their financial stability.

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Press Contact: Alfred King alfred.king@responsiblelending.org