US agency says apps that let workers access paychecks before payday are providing loans

NEW YORK — The Consumer Financial Protection Bureau said Thursday that apps that allow workers to access their paychecks in advance, often for a fee, are providing loans and therefore subject to the Truth in Lending Act, a 1968 law that requires lenders disclose all loan costs and fees. Christine Zinner, policy counsel at Americans for Financial Reform, said the paycheck advance 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.” “People can easily become trapped in a cycle of debt by re-borrowing, requesting advances 12 to 120 times each year, just to pay basic household expenses and make ends meet,” she said. claiming tips are used to support other vulnerable consumers or for charitable purposes.” With the interpretive rule, the CFPB is clarifying that “if workers obtain money they are required to repay out of their paychecks, this is a loan under federal law, must disclose an interest rate.” This means that tips and fees for expedited transfers must be incorporated into the cost of the loan, under the disclosure scheme mandated by the Truth in Lending Act, and those costs may not be treated as “incidental, even if the amount is variable,” Chopra said. “Earned Wage Access should not be considered a loan as it is a no-cost, non-recourse product giving access to money workers have already earned, not future pay,” she said in a prepared statement, adding the proposed rule would “hurt millions of workers who rely on Earned Wage Access to tap into their already earned wages.” In its report, the CFPB found that, despite companies marketing these services as free for workers in non-employer subsidized transactions, “most workers paid at least one fee and nearly all workers opt to pay a fee for expedited access to their funds.” The CFPB said that with nearly 50% of earned wage product users turning to the service more than once a month, “costs may accumulate for workers who are frequently paid by the hour, have liquidity constraints, and receive public benefits.” The agency will take comments on the proposed interpretive rule until the end of August.