U.S. agency says apps that let workers access paychecks before payday are lenders

Rohit Chopra, director of the Consumer Financial Protection Bureau, speaks at the White House on March 5. 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 to disclose all loan costs and fees. 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. Asked why, EarnIn Chief Executive Ram Palaniappan said it was no longer “economically viable.” Penny Lee, president of the Financial Technology Assn., an industry group that counts many earned wage access companies as members, said her group is “deeply concerned” by the proposed action by the CFPB. “Earned wage access should not be considered a loan as it is a no-cost, nonrecourse 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.