(PatriotWise.com) — A federal consumer watchdog agency last week proposed a new rule to recategorize paycheck advance products as consumer loans to ensure that lenders are providing borrowers with information about fees and costs.
According to a July 18 press release, the Consumer Financial Protection Bureau (CFPB) said the “interpretive rule” would consider paycheck advances as consumer loans to make them “subject to the Truth in Lending Act.”
Nearly three-quarters of US workers are either paid monthly or bi-weekly, according to the CFPB, and many have relied on paycheck advance lenders to act as a bridge to ensure expenses are paid on time.
During the record-high inflation as consumer prices skyrocketed, the number of paycheck protection loans increased by 90 percent, with over 7 million workers taking out roughly $22 million in loans, according to the CFPB.
CFPB Director Rohit Chopra said in the news release that marketing for paycheck advance loan programs is often targeted to employers rather than workers and the new rule would help workers understand “what they are getting with these products” while preventing questionable business practices on the part of the paycheck advance industry.
Under the proposed rule, many paycheck protection products would be required by federal law to disclose to borrowers information on interest, fees, and the total cost incurred from using the product.
Those seeking an advance on their paychecks usually pay a fee for the expedited transfers that, on average, is $3.18. However, the fee can range anywhere from $1.00 to $5.99, according to CFPB.
Meanwhile, workers who regularly utilize direct-to-customer advance products pay a monthly subscription fee that costs as much as $14.99 a month.
According to Acting Labor Secretary Julie Su, while wages have increased in recent years, the high rate on financial products, along with junk fees, “chip away at these gains” and “take advantage of workers.”
The CFPB recently sued the online lending site SoLo Funds for using what it described as “digital trickery” to hide from its online customers the interest and fees related to its loans.
Copyright 2024, PatriotWise.com
