(IntegrityTimes.com) – On Thursday July 18 the Consumer Financial Protection Bureau (CFPB) released a proposal for new rules targeting lenders who provide paycheck advance loans. These loans are categorized as earned wage products.
Going forward they will be required to comply with the Truth in Lending Act. The CFPB has found that the annual percentage rates (APRs) in these wage products are often much higher than would be typical for credit cards or other loans. Under the proposed changes payday loan providers will have to disclose these APRs to consumers with greater accuracy so that they can make better informed decisions.
The American Fintech Council (AFC) has pushed back on the proposed requirements for transparency. They contend that the paycheck advance products aren’t technically loans or even really advances, so the regulations should not apply to them. AFC president Phil Goldfeder claims the earned wage access programs are safer than the alternatives, such as payday loans that usually require credit checks and can impact people’s credit scores. Goldfeder added that millions of Americans rely on these earned wage products, and that the proposed new rules would harm them.
If the rule change is enacted, the Truth in Lending Act would also force lenders to include optional fees for early access or tips in the overall cost of the loan. Some believe that this kind of early access wage product is vital to have available because so many people need to access their paycheck funds between official pay periods, often for urgent reasons. However, people who routinely use these earned wage products are often shocked to find how much the extra fees and tips have eaten away at their paychecks.
The CFPB has also proposed a new rule for popular “buy now, pay later” programs known as BNPLs. They found that a great many of these BNPL transactions seem to involve disputes or returns. In 2021 alone, Americans returned or disputed roughly $1.8 billion worth of transactions. Under the proposed rules, lenders would be required to investigate such consumer disputes and pause payments for the duration. While there may be considerable pushback by some in the financial industry, the proposed new rules will help protect consumers against predatory lending practices.
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