Consumer Financial Protection Bureau proposes new rule for Earned Wage Access apps under Truth in Lending Act

The Consumer Financial Protection Bureau (CFPB) has taken a major step to regulate apps that allow workers to access their paychecks in advance, often for a fee. These apps, known as Earned Wage Access, have been compared to payday lending and are now subject to the Truth in Lending Act.

The proposed rule aims to provide transparency and prevent exploitative business practices within the industry. The CFPB found that these apps often charge high fees for instant access to paychecks, leading to interest rates higher than the most expensive subprime credit cards.

The agency’s research revealed that millions of American workers use Earned Wage Access apps, with the average user taking out 27 loans a year. Many of these workers earn less than $50,000 annually and are facing the challenges of high inflation.

Critics argue that these apps function as workplace payday loans, trapping users in a cycle of debt. The CFPB is particularly concerned about the additional “tips” requested by the apps, which can pressure users to pay more for their advances.

The proposed rule clarifies that these advances are considered loans under federal law and must disclose interest rates. Some companies in the industry have expressed opposition to the rule, claiming it would hurt workers who rely on Earned Wage Access.

The CFPB is accepting comments on the proposed rule until the end of August, emphasizing the need for a competitive market that benefits both employees and employers. The move represents a significant effort to ensure the financial well-being of workers in the Earned Wage Access industry.