WASHINGTON– More than 160 consumer, labor, civil rights, faith-based, and community organizations submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) in support of its proposed interpretive rule ensuring important legal protections for consumers who use earned wage advance (EWA) or other fintech cash advance products that need to be repaid with the borrower’s next paycheck. The letter calls for clearer cost and fee disclosures for these workplace payday loans.
“Cash advance apps that call themselves ‘earned wage access’ are just payday loans in disguise,” said Lauren Saunders, associate director of the National Consumer Law Center. “Workers should not have to pay to be paid or be subject to payday loans with costs disguised in ‘tips,’ ‘expedite fees’ or other junk fees. A tip is paid to a human being who serves you; it is not a legitimate way to disguise the cost of predatory loans.”
The Center for Responsible Lending (CRL) and the National Consumer Law Center (NCLC), signatories to the coalition letter, also expressed strong support for the rule and called for more transparency in fee disclosures in a separate, more detailed comment letter that the groups will submit to the agency on Friday.
“This CFPB proposal affirms what is commonsense: paycheck advance apps are loans that are subject to federal lending laws,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending (CRL). “This proposal requires disclosure of junk fees like tips and expedite fees, which would protect the most vulnerable consumers – disproportionately people of color – promote fair competition among lenders, and allow consumers to shop for the best deal.”
The proposed interpretive rule classifies EWA and cash advance products as credit. Furthermore, it classifies tips and expedited delivery fees as finance charges that must be disclosed to borrowers in line with the federal Truth in Lending Act (TILA).
“Earned Wage Advance products are nothing more than workplace payday loans made available on a cell phone, which the industry continues to aggressively peddle to vulnerable, lower-wage workers, particularly people of color and women,” said Christine Chen Zinner, senior policy counsel, Americans for Financial Reform. “The CFPB must continue to make sure that these products are treated as the loans that they are, with all the same disclosures as other loan products.”
“I am still waiting to hear how consumers benefit when they cannot see the cost of credit. The answer is, they don’t,” said Adam Rust, director of financial services at the Consumer Federation of America. “By requiring regular disclosures and treating paycheck advances as credit, the CFPB’s guidance brings clarity and common sense to a credit product whose terms have been unclear for too long.”
The coalition letter to the CFPB states, in part, that:
“Workers should not have to pay to be paid, and we support the CFPB’s efforts to guard against predatory lending in the workplace and to prevent evasion of consumer protection laws by new forms of payday loans.
“Lenders should not be allowed to disguise 300% APR loans in so-called ‘tips,’ expedite fees or other junk fees, or by claiming that their loans are not loans. Advances of wages or other income, repaid later, are loans regardless how they are styled. All payday advances need clear cost and fee disclosures. Workers of color and lower-income workers are particularly susceptible to predatory lending practices as they may have less access to traditional banking services and products, and are also less likely to be paid a living wage.”
“Our country is facing a massive shortage in teachers, in-class aids, bus drivers, food services workers, custodians and clerical workers thanks to low wages for educators. It is shameful that companies will hide predatory junk-fees as “tips” and trap educators in cycles of debt. The CFPB must protect working-class families and strengthen our consumer protection laws,” said Jeff Freitas, president of Chicago Federation Teachers–A Union of Educators & Classified Professionals, American Federation Teachers, AFL-CIO.
“Rapacious lenders have been endlessly creative in disguising the high cost of payday advances. The Consumer Financial Protection Bureau is right to expose 300 percent APR loans, no matter what they’re called, to prevent workers from being gouged,” said Deborah Weinstein, executive director, Coalition on Human Needs.
“When consumers don’t have all of the information, they cannot make informed financial decisions for themselves and their situation. The CFPB’s interpretive rule provides much needed transparency about the stacked and hidden fees these products carry, as well as clarity to consumers about how much using these cash advance products will actually cost them,” said Briana Gordley, Fair Financial Services Project, Texas Appleseed.
“At Workplace Fairness, we strongly support the CFPB’s efforts to ensure transparency and fairness in workplace payday loans, particularly through clearer fee disclosures. Workers should never have to pay hidden costs just to access their earned wages. Predatory lending practices, often disguised as tips and fees, disproportionately affect vulnerable populations, including people of color and low-income workers. It is crucial that all payday advances be treated as the loans they are, with full disclosure to protect workers’ rights and financial well-being,” said Edgar Ndajtou, executive director, Workplace Fairness.
“At Citizen Action/Illinois, we believe that no worker should have to pay exploitative and deceptive fees just to access their hard-earned wages. These ‘earned wage’ products are nothing more than payday loans in disguise, trapping workers in cycles of debt. The CFPB’s proposed rule is a crucial step in protecting workers from these predatory practices. We applaud the Bureau for standing firm in its commitment to transparency and consumer protection,” said Anusha Thotakura, director, Citizen Action/Illinois.
“Employees deserve to know the cost of paycheck advances ahead of time. As the CFPB’s research shows, typical employer-partnered advances come with triple-digit APRs,” said Mike Litt, U.S. PIRG’s consumer campaign director. “Thanks to the CFPB’s rule, consumers must receive fee disclosures for earned wage cash advances, which are already required for other types of credit.”
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