Private banking

Consumer advocates urge CFPB to curb payday loan companies

Consumer Financial Protection Bureau Headquarters in Washington, DC REUTERS / Andrew Kelly

  • Defenders send letter to new CFPB director Rohit Chopra on access to earned wages
  • They argue that EWA is risky, should be regulated like credit

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(Reuters) – Dozens of lawyers have called on the US Consumer Financial Protection Bureau to regulate wage access products earned as a form of credit, arguing that giving workers money before payday poses unresolved risks.

In the letter to Rohit Chopra, who was sworn in as the agency’s director on Tuesday, 96 attorneys, including the National Consumer Law Center, urged the CFPB to rescind Trump-era legal guidelines that certain consumer products Wage Earned Access, or EWA, should not be deemed credit under consumer protection laws.

EWA companies advance the wages earned to workers, either directly or as a benefit through their employers. Businesses describe themselves as a sustainable alternative to high interest payday loans and bank overdrafts.

In their letter and one legal note, consumer advocates have argued that workers who use the programs tend to do so consistently week after week, putting them on a financial treadmill where even small fees, to speed up payments, for example, can accumulate.

“At the end of the day, consumers may just find themselves in a situation where they regularly pay to get paid,” they wrote.

A CFPB spokesperson said on Tuesday the agency received the letter. “We appreciate the contribution of this coalition on this issue,” said the spokesperson.

James Kim, a partner at Ballard Spahr who advises fintech companies, said Tuesday that the call to treat EWA as a credit does not distinguish between products, which have different characteristics.

“Putting it all together and saying that collectively we should conclude that they are all credit or uncredited is a mistake,” he said.

The EWA industry has occupied a regulatory gray area adjacent to traditional lenders.

In November, a memo from Kathleen Kraninger, then director of CFPB, stated that EWA products with certain features, such as those that do not collect worker payments, are not credits, but rather akin to an accelerated worker pay cycle.

Advocates called for the order to be overturned on Tuesday, saying its legal reasoning creates a “slippery slope” that can be used to undermine legal protections for consumers.

They pointed out that the CFPB issued a notice in December that Payactiv Inc’s EWA product was not a credit, although it does charge attendees a nominal fee in some cases. The agency is also expected to review this approval, they said.

Advocates also said the CFPB should drop the advisory program that allowed Payactiv to seek advice, calling it inappropriate for the agency to endorse specific products.

Payactiv’s general counsel Aaron Marienthal said on Tuesday the company was reviewing the letter.

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