Attorney General Andrea Joy Campbell has led a multistate coalition of 14 attorneys general in supporting a proposed rule by the Consumer Financial Protection Bureau (CFPB) that would recognize paycheck advance products, which are typically mobile applications marketed as earned wage advances or earned wage access (EWA) products, as consumer loans. Accordingly, the proposed rule would clarify that relevant federal laws apply to these financial products, protecting consumers from harmful practices associated with the industry.
Paycheck advance products offer consumers cash advances to be repaid on their pay day and are often marketed to consumers who may need to cover short term expenses. Frequently advertised as helping consumers avoid costs, the use and availability of EWA products has increased in recent years. However, common EWA practices, including delivery fees for expedited funds and misleading representations related to “tips,” are often costly and harmful to consumers, preventing them from understanding the true price and nature of what they’re paying for.
Emphasizing the consumer harms associated with EWA products, the coalition submitted a comment letter to the CFPB in support of its rule clarifying that EWA products are a form of “credit” or loan under the federal Truth in Lending Act (TILA), and thus, TILA’s consumer protections apply to EWA loans.
“Without adequate consumer protections, paycheck advance products have the ability to harm vulnerable consumers often struggling to pay time-sensitive expenses, exacerbating their financial costs instead of alleviating them,” said AG Campbell. “I am proud to lead this multistate coalition in support of the CFPB’s proposed rule, which would ensure that these products are subject to federal consumer protections.”
In accordance with TILA, the proposed rule would provide greater transparency for consumers by requiring EWA providers to disclose any consumer payments related to the transaction of loans, especially expedited delivery fees and “tips,” as finance charges that constitute the cost of the loan.
According to a study referenced in the letter, consumers who paid expedited delivery fees and “tips” ultimately paid an average effective annual percentage rate (APR) of 300% for their loans, demonstrating the deceptively high cost of these loans. Additionally, certain features of EWA services, which users primarily interact with through mobile applications, can be misleading and manipulative to consumers. Particularly, the regular solicitation of “tips” by EWA services, sometimes without an easily recognizable ability to opt-out and often including pre-selected suggested tip amounts, make it more difficult for consumers to avoid such payments. EWA services are also known to deceptively suggest to consumers that such “tips” are intended for the benefit of other consumers when they in fact are ordinary revenue for the company.
The comment letter further underscores how the CFPB’s proposed rule complements similar state level laws and regulations to protect consumers and may in fact, curb the proliferation of a new wave of tech-savvy predatory loans, similar to payday loans.
This matter was handled by Assistant Attorneys General Eric Carnevale, Matthew Lashof-Sullivan, and Adelaide Pagano, and Division Chief Yael Shavit, all of the AG’s Consumer Protection Division.
This matter furthers AG Campbell’s priority to advance economic opportunity and consumer justice. Earlier this year, AG Campbell reached a settlement with a financial company that provided unlawful predatory loans to Massachusetts consumers, securing debt relief and $625,000 in restitution for impacted consumers, and barring the company from further lending in the state.
Consumers who believe they have been subjected to an unfair or deceptive business practice, including by a paycheck advance company, may file a consumer complaint with the AG’s Office or call (617) 727-8400.
Joining AG Campbell in submitting the letter are the attorneys general of Delaware, the District of Columbia, Maine, Maryland, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, and Rhode Island.
Original source can be found here.