CFPB proposes new rule to include payday advances under Truth in Lending Act
The US Consumer Financial Protection Bureau (CFPB) is proposing a new interpretive rule that would bring payday loan advances into the same scope of the Truth in Lending Act as consumer loans.
CFPB proposes new rules for payday advances
The amendment stipulates that the fees workers often pay to access their earned wages early must be accompanied by the appropriate consumer disclosures.
“Clear disclosures help borrowers understand and compare loan options, sharpens price competition, and ultimately benefits companies that offer competitive products,” the regulator’s latest statement says.
CFPB data suggests a significant increase in the number of workers in the US opting for payday loan advances, which are predominantly offered through either an employer-partnered or direct-to-consumer model.
Its survey of eight companies that partner with employers to offer loans based on earned wages found that transaction volume had risen 90% between 2021 and 2022, when more than seven million workers tapped the service to access approximately $22 billion.
Of these seven million, 90% were found to have paid at least one fee for the service during this year, with 92.5% of fee revenue attributed to expedited transfers. The direct-to-consumer model, on the other hand, typically relies on monthly subscription fees, which were found to cost as much as $14.99.
“The proposed interpretive rule makes clear that many pay check advance products – whether provided through employer partnerships or marketed directly to borrowers – trigger obligations under the federal Truth in Lending Act,” the statement continues.
The public has until 30 August 2024 to submit comments to the CFPB regarding the amendment.
“Paycheck advance products are often marketed to and designed for employers, rather than employees,” comments CFPB director Rohit Chopra. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”
