The Consumer Financial Protection Bureau is proposing a rule that would classify apps providing workers with access to their paychecks in advance as loans under the Truth in Lending Act. Earned Wage Access apps have become popular, but the agency found that users are being charged fees that result in high interest rates, similar to payday loans. The average worker using Earned Wage Access takes out 27 loans a year, with interest rates exceeding 100%. Users, who typically earn less than $50,000 a year, are being charged monthly subscription fees and mandatory fees for instant transfers of funds. The CFPB is also scrutinizing the “tips” that many apps request when providing paycheck advances, as these fees must be included in the loan disclosures. Some Earned Wage Access companies argue that the fees should not be part of the standard APR calculation. The Financial Technology Association is concerned about the proposed rule, as they believe Earned Wage Access is a no-cost product that provides access to already earned wages. However, the CFPB’s report found that most workers using Earned Wage Access are actually paying fees for expedited access to their funds. The agency is seeking comments on the proposed rule until the end of August, with the goal of ensuring that the market competes to lower costs for employees and employers.
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U.S. agency affirms that apps granting early access to paychecks are essentially offering loans
