FOR IMMEDIATE RELEASE
July 18, 2024
CONTACT
Carter Dougherty
carter@ourfinancialsecurity.org
Much Needed Workplace Payday Loan Rule Will Help Curb Predatory Loan Practices
Today’s interpretative rule by the Consumer Financial Product Bureau on workplace payday loans (or the so-called Earned Wage Access products) will clearly label these products as loans, subjecting them to the laws, disclosures, and protections that consumers deserve if they choose products that are effectively high-cost loans.
”These products are nothing more than workplace payday loans, with consumers more easily preyed upon since the money is only a tap away on a cell phone,” said Christine Zinner, policy counsel at Americans for Financial Reform. “Workers of color and lower-income workers are particularly susceptible to predatory lending practices as they may be unable to access traditional banking services and products and are also less likely to be paid a living wage.”
As a result of this proposal, companies offering these loans will have to follow basic rules such as the 55-year-old Truth in Lending Act to disclose the annual percentage rate of these loans.
About 80 percent of workplace payday loans range between $40 and $100, and fees to expedite payments and suggested “tips” can quickly add to workers’ debts. Multiple studies, including a California Department of Financial Protection and Innovation report that evaluated millions of transactions, found that people using workplace payday loans can pay APRs between 331 to 334 percent, similar to payday loan rates in some states. Many of the apps tied to these loan products also employ psychological tactics to push users into adding unnecessary tips to their advances, including setting a high default tip amount and making it harder to reduce these amounts.
“As with traditional payday loans, people can easily become trapped in a cycle of debt by reborrowing, requesting advances 12 to 120 times each year, just to pay basic household expenses and make ends meet,” Zinner said.
The fintech companies pushing these workplace payday loans pretend that these products are not loans, and in some instances, have lobbied successfully to exempt workplace payday loans from state laws on rate limits and consumer protections that apply to loans. These workplace payday lenders are continuing to push for legislative exemptions in states where payday loans are already banned.
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