WASHINGTON, D.C. – In what the current administration has already acknowledged is one of the nation’s worst affordability crises for America’s working and middle classes, Russell Vought, acting director of the Consumer Financial Protection Bureau (CFPB), today issued an advisory opinion that aims to let certain, app-based, financial technology (fin-tech) payday lenders continue concealing the true, high-cost price of their loans from consumers.

“App-based payday lenders drain workers’ wallets with high, often obscured fees and typically charge an Annual Percentage Rate (APR) well above 100%. Instead of addressing this problem or requiring an even playing field for both bank and non-bank lenders, political leadership at the CFPB just moved to exempt fin-tech lenders from the law requiring equal disclosure of the cost of loans as an APR,” said Mike Calhoun, president at the Center for Responsible Lending (CRL). “This is the latest in a string of moves from this Administration that gives financial technology firms a free pass from basic legal obligations that protect and inform consumers. This move also undercuts a level playing field with bank lenders, and other responsible lenders that comply with the laws of the states where they operate, and undermines the ability of states, as the primary fin-tech regulators, to protect their residents from high-cost loans using their well-established authority to enact usury laws.”

Background

The CFPB today issued an Advisory Opinion that contained multiple concrete actions. The Advisory Opinion claims that the Truth In Lending Act (TILA) does not apply to certain “earned wage access (EWA) products” – using the industry’s term for payday loan apps – because their loans are not a form of credit and their fees are not finance charges. The Advisory Opinion also announced plans for a Compliance Assistance Sandbox program, a way for companies to get legal assurance to experiment on consumers with new products, and it rescinded a proposed interpretive rule issued under former CFPB Director Rohit Chopra that affirmed app-based payday loans are a form of credit and their fees are finance charges.

Several Center for Responsible Lending research reports show how these loans trap people in debt. For instance, by reviewing an anonymized dataset of thousands of app borrowers, CRL found payday loan apps are designed such that people – over the course of a year – doubled their borrowing frequency, rising from two to four loans per month on average. It also found borrowers paid annual interest rates for app-based payday loans that were comparable to the nearly 400% APR typically paid for storefront payday loans. To see all CRL research and policy reports on this predatory product, visit responsiblelending.org/paydayapps

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Press Contact: Matthew Kravitz matthew.kravitz@responsiblelending.org