The National Consumer Law Center, on behalf of its low-income clients, the Center for Responsible Lending, and the Consumer Federation of California submitted comments to the Department of Financial Protection and Innovation’s (DFPI) proposed regulation governing the registration and data reporting requirements for certain industries. These comments focused on the proposed registration of providers of wage-based advance providers.
In these comments, we first highlight the risks that wage-based advances pose to workers. We then discuss the critical importance of ensuring substantive protections for consumers who use wage-based advances, beyond registration and data reporting by providers. In particular, we reiterate our strong belief that wage-based advances are loans and are covered by and must comply with the California Deferred Deposit Transaction Law, the California Financial Law, or the California Constitution’s usury limit, depending on their business model. We appreciate DFPI’s clear statement that this proposed regulation does not reflect a determination that other licensing regimes do not apply, and we realize that analysis is ongoing.
It is critical that DFPI’s new authority under the California Consumer Financial Protection Law not be used to enable providers to avoid existing laws or benefit from a weaker regulatory regime, or to allow the Department to sidestep the hard work of preventing evasions of existing laws. We urge swift action to take the next step to ensure full compliance by wage-based advance providers with California’s lending laws. We also emphasize that enforcing California’s lending laws will help encourage the trend towards free early pay for workers and discourage models that are free to employers but push the costs onto low-wage workers.
We then briefly address a concern posed by the Department’s proposed definition of wage-based advances before turning to suggestions for improving the registration process and data reporting.