CFPB proposes interpretive rule on paycheck advance products

The CFPB yesterday announced a proposed interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. The guidance, according to the Bureau, will ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers. The CFPB also published a report examining employer-sponsored paycheck advance loans. The report finds that workers using these employer-sponsored products take out an average of 27 such loans per year and that the typical employer-sponsored loan carries an annual percentage rate (APR) over 100%.

The proposed interpretive rule [Note: Published 7/31/2024 at 89 FR 61358] explains how existing law applies to this emerging product market, and replaces a 2020 advisory opinion that addressed a very specific paycheck advance product that is not common in the real market. The proposed interpretive rule makes clear that many paycheck advance products – whether provided through employer partnerships or marketed directly to borrowers – trigger obligations under the federal Truth in Lending Act. In addition, the CFPB’s proposed interpretive rule makes clear that:

• Many loan costs are finance charges: Fees for certain “tips” and expedited delivery meet the Truth in Lending Act’s standard for being finance charges. When the paycheck advance product is no-fee and truly free to the employee, many requirements would not apply.
• Borrowers must receive key disclosures: Among other requirements, earned wage lenders must provide workers with appropriate disclosures about the finance charges. Clear disclosures help borrowers understand and compare loan options, sharpens price competition, and ultimately benefits companies that offer competitive products.

The CFPB encourages the public to submit comments on this interpretive rule to inform whether additional clarifications are needed. Comments will be accepted until August 30, 2024.