The CFPB weighs on access to earned wages

The Consumer Financial Protection Bureau has signaled that it is likely to take a close look at pay-on-demand services proliferating in the United States and may revisit controversial policies on the subject issued under the Trump administration.

In response to New Jersey consumer advocates protesting state legislation that would have given businesses leeway to collect payments for on-demand services, CFPB Acting General Counsel Seth Frotman, said in a letter on Monday that the state’s proposal should not be seen. as being supported by a 2020 CFPB advisory opinion.

The scope of this order is very narrow, he explained, and does not cover any service in which a fee, voluntary or involuntary, is part of an offer. He also noted that some of these services may qualify as loans under federal laws, including the Truth in Lending Act.

“Products that include the payment of fees, whether voluntary or not, are excluded from the scope of the advisory opinion and may well be credited by TILA,” Frotman said in his Response of January 18 to New Jersey advocacy organizations.

Frotman added that because of the “significant confusion” apparently caused by the Trump-era CFPB advisory opinion, he plans to recommend that CFPB Director Rohit Chopra clarify those guidelines. The New Jersey attorneys had asked the agency in a Dec. 22 letter to rescind the CFPB’s notice regarding pay-as-you-go, also known as earned wage access.

Dozens of fintech companies have deployed salary access services over the past decade with various revenue-generating models. They describe their offerings as much-needed alternatives to payday lenders that charge high interest fees. Some services charge a flat fee to employees while others charge based on employee usage. And some require the employer to pay for their services.

Some of the biggest companies offering the increasingly popular services include Payactiv, based in San Jose, Calif., DailyPay, based in New York, and Even, based in Oakland, Calif.

The New Jersey Coalition of Consumer Organizations argues that the New Jersey bill would give companies leeway to take advantage of low-income workers. the proposed legislation the establishment of certain licensing requirements for suppliers. He also proposed exempting certain fees or voluntary payments from certain state lending laws.

New Jersey defenders argued that proponents of the legislation were using the CFPB’s advisory opinion to avoid a 30% cap on state law interest rates and other credit protections. to consumption.

Similarly, an October letter to the CFPB from national consumer organizations, including the National Consumer Law Center, expressed some of the same concerns on state legislative proposals that are spreading across the country.

“The letters clearly show that the advisory opinion caused significant confusion in the marketplace,” Frotman said in his letter.

Advocacy groups hailed his response. New Jersey’s legislation “would have allowed predatory payday loan companies to target low-wage workers and potentially trap them in a destructive cycle of debt,” the New Jersey organizations said. said in a press release Tuesday. The groups included New Jersey Citizen Action, Appleseed New Jersey and Consumer Reports.

They also urged the CFPB to rescind the 2020 advisory, saying it was used to justify circumventing state laws and consumer protections.

New Jersey legislative proposal was proposed by Democratic Senator Nicholas Scutari, and adopted unanimously earlier this month by that state’s Senate Appropriations and Budget Committee. Nevertheless, a few days later, he was suspended in the state’s other chamber by fellow Democrat A.Assembly Speaker Craig Coughlin, according to one of the consumer advocacy groups. A Scutari staffer did not immediately respond to a request for comment.

Such legislation has been introduced in other states and received mixed reactions. California has imposed an extensive review process for some of these companies and their services. In Utah, a legislative proposal was also blocked, but alternative legislation could be considered.

“Exempting payday advance programs from New Jersey’s banking and usury laws would allow employers, payroll companies and fintech companies to charge high fees to the state’s most vulnerable workers,” Chuck Bell, director of programs for Consumer Reports, said in the New Jersey coalition press release. “With 25% of state workers living paycheck to paycheck, this is a critical survival issue for workers in retail, food service, manufacturing and the delivery.”

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