NEW YORK (AP) — The Consumer Financial Protection Bureau said Thursday that apps that allow workers to access their paychecks in advance, often for a fee, are providing loans and therefore subject to the Truth in Lending Act, a 1968 law that requires lenders disclose all loan costs and fees.
If enacted, the proposed rule would provide clarity to a fast-growing industry known as Earned Wage Access, which has been compared to payday lending. The agency wants borrowers to be able to “easily compare products” and to prevent “race-to-the-bottom business practices,” CFPB Director Rohit Chopra said on a call with reporters.
Earned Wage Access apps have been around for more than a decade, but they gained popularity in the years prior to the pandemic and since. The apps extend small short-term loans to workers in between paychecks so they can pay bills and meet everyday needs. On payday, the user repays the money out of their wages, along with any fees.
According to its report, the Consumer Finance Protection Bureau found that, in 2022, at least 5% of American workers used an earned wage product at least once. They estimate that 7 million workers were advanced $22 billion through apps that worked with their employers, and 3 million workers were advanced $9.1 billion through direct-to-consumer apps.
The agency's research shows the average worker who uses Earned Wage Access takes out 27 of these loans a year, meaning one loan for almost every biweekly paycheck. This can look similar to a revolving credit card balance. But with fees that would equal an average Annual Percentage Rate (APR) of over 100%, the loans have interest rates higher than the most expensive subprime credit card. Most of this interest comes from fees to expedite access to paychecks, the CFPB found.
The typical user of these apps earns also less than $50,000 a year, according to the Government Accountability Office, and has experienced the pinch of two years of high inflation. Many of the apps charge monthly subscription fees and most charge mandatory fees for instant transfers of funds.
Christine Zinner, policy counsel at Americans for Financial Reform, said the paycheck advance products “are nothing more than workplace payday loans, with consumers (being) more easily preyed upon since the money is only a tap away on a cell phone.”
“People can easily become trapped in a cycle of debt by re-borrowing, requesting advances 12 to 120 times each year, just to pay basic household expenses and make ends meet,” she said.
The CFPB also said it is paying close attention to the “tips” many of the apps request when providing advances on paychecks. On the call, Chopra called the practice odd, noting that many paycheck advance companies bring in “substantial revenues” from the so-called tips.
In 2021, the California Department of Financial Protection and Innovation found “users often feel compelled to leave (tips) due to applied pressure tactics like... claiming tips are used to support other vulnerable consumers or for charitable purposes.”
With the interpretive rule, the CFPB is clarifying that “if workers obtain money they are required to repay out of their paychecks, this is a loan under federal law, (and the companies) must disclose an interest rate.”
This means that tips and fees for expedited transfers must be incorporated into the cost of the loan, under the disclosure scheme mandated by the Truth in Lending Act, and those costs may not be treated as “incidental, even if the amount is variable,” Chopra said.
Some Earned Wage Access companies have argued these fees should not be treated as part of the standard APR calculation on the loans. When Connecticut passed a law capping the fees the apps could charge under its state usury limits, at least one Earned Wage Access company, EarnIn, stopped operating in the state. Asked why, EarnIn CEO Ram Palaniappan said it was no longer “economically viable.”
Penny Lee, president of the Financial Technology Association, an industry group that counts many EWA companies as members, said her group is “deeply concerned” by the proposed action by the CFPB.
“Earned Wage Access should not be considered a loan as it is a no-cost, non-recourse product giving access to money workers have already earned, not future pay,” she said in a prepared statement, adding the proposed rule would “hurt millions of workers who rely on Earned Wage Access to tap into their already earned wages.”
In its report, the CFPB found that, despite companies marketing these services as free for workers in non-employer subsidized transactions, “most workers paid at least one fee and nearly all workers opt to pay a fee for expedited access to their funds." The CFPB said that with nearly 50% of earned wage product users turning to the service more than once a month, "costs may accumulate for workers who are frequently paid by the hour, have liquidity constraints, and receive public benefits.”
The agency will take comments on the proposed interpretive rule until the end of August.
“Today’s report and rule are important steps for the CFPB to ensure the market is working,” Chopra said. “We want to see the market compete down costs for employees and employers.”
The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
FILE - Rohit Chopra, director of the Consumer Financial Protection Bureau, speaks as President Joe Biden meets with his Competition Council to announce new actions to lower costs for families in the State Dining Room of the White House in Washington, on March 5, 2024. The CFPB said Thursday July 18, 2024 that apps that allow workers to access their paychecks in advance, often for a fee, are providing loans and should be subject to the Truth in Lending Act. (AP Photo/Andrew Harnik, File)
NEW YORK (AP) — Shohei Ohtani hit a leadoff homer and scored four times, Mookie Betts also went deep and drove in four runs, and the Los Angeles Dodgers routed the New York Mets 10-2 on Thursday night for a 3-1 lead in their lopsided National League Championship Series.
Betts had a two-run homer and a two-run double among his four hits. Max Muncy extended his streak of reaching base safely to 12 plate appearances, a postseason record, and the Dodgers moved within one win of their 25th pennant — most in NL history.
Game 5 is Friday at Citi Field, with Jack Flaherty expected to pitch for Los Angeles looking to put his hometown team in the World Series.
David Peterson was set to make his first playoff start for New York after pitching well out of the bullpen this postseason.
“Peterson is fully rested. Last time he pitched was four days ago. So I’m anticipating him making a regular start,” Mets manager Carlos Mendoza said.
Surprise cleanup batter Tommy Edman had three RBIs, including a tiebreaking double off starter Jose Quintana with two outs in the third inning. Kiké Hernández followed with an RBI single that made it 3-1.
Betts broke open the game, greeting reliever Jose Buttó with a two-run double in the fourth and then right-hander Phil Maton with a two-run homer in the sixth.
Both big hits followed walks to Ohtani, handed three straight free passes after homering on consecutive swings going back to Game 3.
“Not only Ohtani, you have to take care of the other guys behind him,” Mendoza said. “When he goes out there first at-bat of the game and hits it like that, obviously, it’s a good feeling for them. We knew that wasn’t going to beat us, but we couldn’t just stop it.”
Betts gave a huge fist pump between second and third as he rounded the bases following his third homer of these playoffs.
Mark Vientos provided a rare highlight for New York, hitting his fourth postseason homer in the first inning off $325 million rookie Yoshinobu Yamamoto.
But the Mets, who were 14-2 in their past 16 games at Citi Field when they arrived back home Wednesday, were blown out on their own turf for the second successive night.
New York has been outscored 30-9 in the series, including 9-0 in the opener and 8-0 in Game 3.
“You’ve got to give those guys credit. That’s a deep lineup,” Mendoza said. “And whether (our starters) are feeling it or not, we haven’t executed and we haven’t got length from them.”
The latest flop after a thrilling comeback ride this far into October hushed a sellout crowd of 43,882 and left Citi Field eerily quiet in the late innings — and just about as empty as April.
Evan Phillips earned the win with 1 1/3 scoreless innings in relief of Yamamoto.
Trailing 7-2, the staggering Mets had a chance to get back in the game when they loaded the bases with nobody out in the sixth. But then Phillips got two outs and Blake Treinen retired pinch-hitter Jesse Winker on a fly to the right-field warning track.
TRAINER’S ROOM
Dodgers: All-Star 1B Freddie Freeman missed his second game of the playoffs. Freeman has been playing with a badly sprained and swollen right ankle throughout the postseason.
Mets: Slumping catcher Francisco Alvarez hobbled to first base in pain after getting drilled by Yamamoto's 91 mph sinker to begin the fifth. He was pulled for a pinch hitter with the bases loaded in the sixth.
UP NEXT
Acquired from Detroit at the July 30 trade deadline, Flaherty went 6-2 with a 3.58 ERA in 10 regular-season starts for the Dodgers and finished 13-7 with a 3.17 ERA overall. He allowed two hits over seven innings to win the NLCS opener 9-0.
AP MLB: https://apnews.com/hub/mlb
Los Angeles Dodgers' Shohei Ohtani scores past New York Mets catcher Francisco Alvarez on a double by Mookie Betts during the fourth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Ashley Landis)
Los Angeles Dodgers' Shohei Ohtani scores past New York Mets catcher Francisco Alvarez on a double by Mookie Betts during the fourth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Frank Franklin II)
Los Angeles Dodgers' Shohei Ohtani reacts after getting hit with a foul ball during the eighth inning in Game 4 of a baseball NL Championship Series against the New York Mets, Thursday, Oct. 17, 2024, in New York. (AP Photo/Ashley Landis)
Los Angeles Dodgers' Shohei Ohtani breaks his bat and grounds out against the New York Mets during the seventh inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Adam Hunger)
Los Angeles Dodgers' Shohei Ohtani celebrates after scoring on Mookie Betts two-run home run against the New York Mets during the sixth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Frank Franklin II)
Los Angeles Dodgers' Shohei Ohtani celebrates in the dugout after scoring on a double by Mookie Betts during the fourth inning in Game 4 of a baseball NL Championship Series against the New York Mets, Thursday, Oct. 17, 2024, in New York. (AP Photo/Frank Franklin II)
Los Angeles Dodgers' Mookie Betts celebrates after a two run double against the New York Mets during the fourth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Adam Hunger)
Los Angeles Dodgers' Mookie Betts hits a two-run home run against the New York Mets during the sixth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York (AP Photo/Adam Hunger)
Los Angeles Dodgers' Mookie Betts celebrates after a two-run home run against the New York Mets during the sixth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Frank Franklin II)
Los Angeles Dodgers' Mookie Betts celebrates after a two-run home run against the New York Mets during the sixth inning in Game 4 of a baseball NL Championship Series, Thursday, Oct. 17, 2024, in New York. (AP Photo/Ashley Landis)
