Consumer Advocates Urge CFPB to Rein in Pay Advance Companies

Dozens of consumer advocacy groups and academics—96 in total—are pushing the Consumer Financial Protection Bureau (CFPB) to regulate pay advance companies, arguing that earned wage access (EWA) products pose potential risks to consumers. In the letter to recently-confirmed CFPB Director Rohit Chopra, they pressed the CFPB to regulate EWA products as a form of credit.

“While free earned wage advances may be a better option for consumers than costly payday loans, these products are not without risks,” the advocates wrote. “Viewing earned wage advances, especially fee-based ones, as something other than credit will lead to evasion of consumer protection and fair lending laws.”

Companies that offer EWA products advance earned pay to workers either directly or as a benefit through the employers, often describing themselves as an alternative to bank overdrafts and payday loans.

According to Reuters, the advocates argued that workers who use EWA programs typically do so consistently, where small fees to expedite payments can add up over time. “In the end, consumers may simply end up in a situation where they are routinely paying to be paid,” they wrote.

Alternatively, James Kim, a Ballard Spahr partner who advises fintechs, argued that the call for EWA products to be considered credit does not differentiate between products with different features. Last November, the CFPB’s previous director Kathleen Kraninger, who was appointed to head the Bureau by former President Donald Trump, said in a memo that some EWA products are not credit, like those that do not collect payment from employees.

The consumer advocates called for that order to be rescinded, stating that it could be used to undermine consumer legal protections. The Bureau issued an opinion stating that Payactiv Inc’s EWA product is not credit, but it sometimes charges small fees, so the advocates urged the CFPB to eliminate the program.