CFPB cracks down on payday advance products

The Consumer Financial Protection Bureau (CFPB) on Thursday proposed a new rule that would categorize popular paycheck advance products as consumer loans, which the agency says will ensure lenders provide borrowers with important information about costs and fees.

Nearly three-quarters of workers are paid biweekly or monthly, according to the CFPB, and lenders have long bridged the gap between when an expense is due and when a worker receives a paycheck.

As inflation has eaten into Americans’ savings and paychecks, there has been rapid growth in the market for paycheck advance products, loans from employer partners or direct-to-consumer that allow employees to receive their paycheck days before it is due. reach your account.

The number of transactions processed by these companies increased 90% between 2021 and 2022, when more than 7 million accessed about $22 million, according to a CFPB study of data from eight employer-partner companies, which it said represent just under half of the employer’s partner market.

“Pay advance products are often marketed 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 avoid bottom-of-the-barrel business practices.”

Under the proposed rule, many of these products trigger a federal law that requires lenders to disclose information to borrowers, including fees, interest and the total costs they incur when using the product.

Workers often pay a fee to get early access to their paychecks, especially for quick transfers.

The average quick fee is $3.18 but typically ranges from $1 to $5.99, according to CFPB data, while workers using direct-to-consumer pay advance products can pay up to $ $14.99 in monthly subscription fees.

“In recent years, workers have seen big increases in wages, but junk taxes and high taxes on financial products not only undermine these gains – they also take advantage of workers,” said Acting Secretary of Labor Julie Su.

Some lenders also offer opportunities for the borrower to “tip” them, a trend the CFPB says it is watching closely.

The agency processed online lending platform SoLo Funds in May for what Chopra called a “digital trick to hide interest and fees on its online loans” by giving “tip” or “donation” options, neither of which were zero.

This story originally appeared on thehill.com read the full story