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In
a proposed interpretive guidance, the agency said many paycheck
advances were subject to the Truth in Lending Act, meaning the
companies who provide millions of such loans a year must give
workers clear disclosures about finance charges, among other
requirements.
Many such workers are borrowing at high interest rates and
incurring sometimes mischaracterized fees, according to the CFPB.
In a statement, CFPB Director Rohit Chopra said his agency's
actions would help wage earners "know what they are getting."
Greater transparency should also spur competition and help
reduce costs, according to Chopra.
States such as Nevada and Wisconsin now license paycheck advance
products, specifying that they are not loans. Prior to the
announcement, CFPB officials said they expected companies to
comply with federal law nonetheless.
A growing number of providers offer paycheck advances. Digital
bank Chime said in May it would allow customers to access up to
$500 of their wages interest-free before payday with no
mandatory fees.
According to a CFPB report also released on Thursday, workers
using paycheck advances take out an average of 27 such loans a
year and employer-sponsored advances typically carry annual
percentage rates of more than 100%.
The agency said the number of such transactions nearly doubled
between 2021 and 2022, when more than 7 million workers borrowed
about $22 billion.
Thursday's CFPB proposal involved an "interpretive rule" rather
than new regulations, which are subject to a lengthy approval
process and can be struck down in court. Republican lawmakers
have expressed frustration with the CFPB's use of such guidance
instead of formal rulemaking.
A senior CFPB official told reporters prior to Thursday's
announcement that before being finalized the interpretive rule
was subject to a public notice-and-comment period due to close
next month.
(Reporting by Douglas Gillison; Editing by Sandra Maler)
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