On July 18, 2024, the CFPB issued a proposed interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. According to the CFPB, the guidance will ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers.
In support of the interpretive rule, the CFPB published a report revealing 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%. The CFPB analyzed 2021-2022 data from eight companies that partner with employers to offer loans based on earned wages. Findings from the analysis include the following:
More workers are paying fees to get wages early;
The market for employer-partnered paycheck advance products is growing rapidly;
Workers access paycheck advance loans frequently and repeatedly; and
Paycheck advance product’s cash advances can be costly.
To ensure fair competition in this market, the proposed interpretive rule explains how existing law applies to this emerging product market, and replaces a 2020 advisory opinion that addressed a very specific paycheck advance product that is not common in the real market. The new guideline explains that most paycheck advance services fall under the federal Truth in Lending Act, whether offered through employers or to individuals. The CFPB’s proposed interpretive rule also clarifies that fees for certain “tips” and expedited delivery meet the Truth in Lending Act’s standard for being finance charges. Additionally, earned wage lenders must provide workers with appropriate disclosures about the finance charges.
Public inputs will be accepted until August 30, 2024.
Read the CFPB’s press release here.
The report can be found here.
The proposed interpretive rule can be found here.