Earned Wage Advances Should Comply with State Interest Rate Limits Now, Not in Four Years
SACRAMENTO – The California Department of Financial Protection and Innovation (DFPI) should restore cost limits for earned wage advances and other fintech cash advances under proposed regulations rather than allow a temporary registration regime with no cost limits for up to four years, the Center for Responsible Lending, Consumer Federation of California, National Consumer Law Center, and Office of Kat Taylor said in comments filed late yesterday.
“The DFPI has seen through industry myths and recognizes that earned wage advances are loans, and that ‘tips’ to lenders can’t be used to evade state interest rate limits. That is the right approach, but lenders must comply with California’s interest rate limits now, not in four years,” said Lauren Saunders, associate director of the National Consumer Law Center.
“DFPI found in their own data that earned wage advances have average annual percentage rates of 330%, so it is clear that these products should not be allowed to skirt California’s hard-fought interest rate limits. The original version of DFPI’s regulations was far superior for consumer protection” said Robert Herrell, executive director of the Consumer Federation of California.
The groups “strongly support the provisions [of the proposed regulations] that make clear that income-based advances are loans and that voluntary charges are ‘charges’” under the California Financing Law (CFL). Those determinations “are absolutely critical to any regulatory approach to fintech cash advances,” the groups wrote.
However, the groups are “deeply disturbed” by the proposal to allow companies, for up to four years, to register without complying with the CFL’s interest rate limits, writing that “it will harm consumers to allow income-based advance providers to continue to operate without any cost limitation.” DFPI registration regimes expire in four years unless the legislature acts to extend them. “[W]e urge DFPI not to wait four years, and to bring income-based advances fully within the CFL as soon as possible,” the comments said.
“Economic justice is not served by high-cost loans that make people pay to be paid, even if they come through employers or rely on ‘tips’ that are purportedly optional,” said Andrew Kushner, senior policy counsel at the Center for Responsible Lending. “DFPI must build upon this registration regime to bring real consumer protections to these products, including the same fee limits that cover other small loans.”
The comments also urged DFPI to make clear that only employer-integrated earned wage advances are covered by any alternative registration regime. “It is especially dangerous and unjustified to extend this [CFL] exemption to fake earned wage advance lenders and other direct-to- consumer fintech cash advances,” and a stricter definition of “income-based advance” is “essential to prevent traditional payday lenders or CFL lenders from claiming that they, too, ‘reasonably determine’ accrued income and can use the alternative registration path.” The comments also urged DFPI to ban repeat bank account debits and so-called “tips” included by default in the cost of an advance.
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