Consumers Need Strong Protections from Fintech Cash Advances that Create Debt Traps

October 11, 2023 — Press Release

New Policy Briefs from CRL and NCLC recommend protections to shield consumers from abusive fintech cash advances

WASHINGTON – Today, the Center for Responsible Lending (CRL) and the National Consumer Law Center (on behalf of its low-income clients) released an issue brief, “State Recommendations for Earned Wage Advances and Other Fintech Cash Advances.”

“Fintech cash advances are credit and should be regulated as credit, with guardrails to prevent abuses,” said Andrew Kushner, senior policy counsel at the Center for Responsible Lending.  “State legislators and regulators should reject industry attempts to exempt fintech cash advances from basic consumer protections. These joint recommendations are the minimum protections needed in any legislation to protect consumers from common abuses we see with fintech cash advance loans.”

CRL also released a separate, more in-depth issue brief “Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances.”

“The predatory payday loan industry exploded after lawmakers bought the fiction that deferred check cashing wasn’t credit, and providers of earned wage advances and other fintech cash advances are pushing the same playbook, seeking loopholes with no meaningful protections,” said Lauren Saunders, associate director at the National Consumer Law Center. “Data confirming the average 330% APR cost of fintech cash advances shows the need for the same interest rate limits and cost caps as other forms of credit to prevent a debt trap.”

The key recommendations in the joint CRL / NCLC brief for state policymakers are:

• States should enforce existing credit laws and, if necessary, clarify that they cover fintech cash advances.
• If a separate regulatory regime specific to fintech cash advances is considered, it should:
  • be only for employer-integrated earned wage advances,
  • cap the total costs lenders can collect at a nominal fee of a few dollars per month, and expressly state that all payments are charges that count toward this cost cap, including so-called “tips,”
  • require that the “voluntary” payments like “tips” default to $0; and
  • permit advances to be repaid only through payroll deduction or another method that is direct from the employer, and expressly bar repayment through debiting a user’s bank account, which can trigger overdraft and nonsufficient funds fees. 

The issue brief also recommends licensing, data collection, and debt collection limits, but warns that those measures alone are insufficient.

The CRL report “Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances” gives a rundown of how fintech cash advances operate, their impact on consumers, the lobbying campaigns from fintech cash advance companies, and the current legal landscape for these loans.

In addition to the joint state-level policy recommendations above, CRL and NCLC also recommend that:

• The Consumer Financial Protection Bureau (CFPB) must articulate a general rule that fintech cash advances are credit subject to the Truth In Lending Act.
• The CFPB should actively conduct supervisory exams of EWA providers under its authority to supervise non-bank lenders that pose a risk to consumers.

In 2021, 96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics wrote to the CFPB urging that fee-based earned wage advances be treated as credit to prevent evasions of federal laws, such as the Truth in Lending Act, and of state laws, in particular usury laws.