From CNBC: 2024-07-19 08:00:01

The Consumer Financial Protection Bureau is targeting paycheck advance programs, which have surged in popularity among workers. The CFPB proposed a rule that would classify these programs as consumer loans subject to the Truth in Lending Act. In 2022, over 7 million workers accessed $22 billion in wages before payday, with transactions increasing by over 90% from the previous year.

If finalized, the rule would require companies to disclose additional information to users and express fees as an annual percentage rate (APR). Despite being marketed as free or low-cost, the typical earned-wage-access user pays fees equivalent to a 109.5% APR. The CFPB’s actions aim to inform workers and prevent exploitative business practices, according to Director Rohit Chopra.

The proposed CFPB rule on paycheck advance programs is part of a broader effort by the Biden administration to crack down on “junk fees.” Earned wage access may go by various names, including daily pay, instant pay, or on-demand pay. Providers such as Branch, DailyPay, and EarnIn offer services either through employers or third-party apps, with fees ranging up to $5.99 for expedited transfers.

The CFPB rule, if implemented, would not prohibit providers from charging fees but would mandate transparent disclosure. Companies could face enforcement actions for non-compliance. Different viewpoints exist on whether earned wage access should be considered a traditional loan, with advocates highlighting the need for clarity and consumer protection.

Read more: What CFPB’s rule on paycheck advance programs means for workers