August 29, 2024
Comment Intake—2024 Paycheck Advance Interpretive Rule
c/o Legal Division Docket Manager
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552
2024-Paycheck-Advance-Interpretive-Rule@cfpb.gov
Re: Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work
Docket No. CFPB-2024-0032
To whom it may concern:
We write in strong support of the Consumer Financial Protection Bureau’s (CFPB) proposed interpretive rule on paycheck advance products. Marketed through “Earned Wage Advance” (EWA) phone apps, these exploitative loans prey on low wage workers and extract massive sums from low-income and Black and brown communities. The proposed rule is a crucial step toward preventing these new forms of payday loans from evading consumer protection laws and harming New Yorkers.
New Economy Project’s mission is to build an economy that works for all, based on cooperation, neighborhood equity, social and racial justice, and ecological sustainability. Since our organization’s founding in 1995, we have worked with hundreds of community organizations to challenge systemic discrimination by Wall Street banks and other financial services companies that perpetuate poverty, inequality, and segregation in New York City neighborhoods. As part of our work, we have pushed for strong enforcement of New York’s usury laws to keep predatory payday lending out of our state—as a matter of economic and racial justice.
The terms “paycheck advance” and “EWA” are euphemisms for predatory small dollar, short-term loans specifically targeted at low-wage and gig economy workers, accessible through a smartphone application. Fintech companies use deceptive marketing to mask EWA’s exorbitant and predatory fees, which amount to an effective average APR of more than 300%.1 For example, companies tout the product as free but typically require paying an “expedite fee” to receive instant access, and use manipulative behavioral economics techniques to coax users to “tip” as part of receiving an advance. In fact, California regulators found that in 73% of EWA transactions, users paid “tips,” and that lenders employed multiple strategies to “make tips almost as certain as required fees.”2
Just one EWA company, EarnIn, disclosed at a recent state legislative hearing that it had over 80,000 users in New York last year.3 At the same hearing, we highlighted that EWA loans bear many of the hallmarks of traditional payday loans—including charging borrowers exorbitantly high APRs and triggering repeat borrowing and costly bank overdraft fees.4 (See our attached testimony for more details.)
EWA lenders notoriously design and market EWA products in ways that obscure their true cost, attempting to sidestep New York’s usury law, which caps interest rates on loans at 25% APR. For example, we recently heard from a NYC College of Technology student who was forced to take out an EWA payday loan which required a $10 fee for a $100 advance—an effective APR of 260%. We stand with New York community groups and labor unions in support of the CFPB’s proposed interpretive rule, which aims to curb predatory lending practices that exploit workers.5 The rule affirms that EWA advances are loans, and are therefore subject to the federal Truth in Lending Act and state usury laws.
We strongly support the proposed interpretive rule to hold predatory lenders accountable and stop companies from exploiting low-wage workers, and we urge the CFPB to stand strong against industry attempts to weaken or undermine the rule.
Thank you for considering our comments.
Sincerely,
Raquel Villagra
Staff Attorney
1 Center for Responsible Lending, Not Free: The Large Hidden Costs of Small-Dollar Loans Made Through Cash Advance Apps, at 3 (Apr. 2024), available at https://www.responsiblelending.org/sites/default/files/nodes/files/research publication/crl-not-free-hidden-costs-apr2024.pdf; Cal. Dep’t of Financial Protection & Innovation, 2021 Earned Wage Access Data Findings, at 1 (Mar. 2023), available at https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/2021-Earned-Wage Access-Data-Findings-Cited-in-ISOR.pdf.
2 Cal. Dep’t of Financial Protection & Innovation, Initial Statement of Reasons for the Proposed Adoption of Regulations, at 61-62 (Mar. 2023), available at https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/PRO-01-21-ISOR.pdf.
3 N.Y. State Assembly, Public Hearing on the Impact of Financial Technology (Fintech) & Its Role in New York’s Banking Industry (Mar. 27, 2024), available at https://nystateassembly.granicus.com/player/clip/8010?view_id=8&redirect=true.
4 New Economy Project, Testimony Before the NYS Assembly on the “Impact of Financial Technology (Fintech) and its Role in New York’s Banking Industry” (Mar. 7, 2024), available at https://www.neweconomynyc.org/resource/testimony-before the-nys-assembly-on-the-impact-of-financial-technology-fintech-and-its-role-in-new-yorks-banking-industry/
5 N.Y.S. Community Equity Agenda, Press Release: NY Labor & Community Groups Endorse CFPB Rule To Crack Down on Predatory Paycheck Advance Loans (Aug. 6, 2024), available at https://www.neweconomynyc.org/2024/08/press-release-ny labor-community-groups-endorse-cfpb-rule-to-crack-down-on-predatory-paycheck-advance-loans/