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Earned Wage Advance

Among the hottest consumer finance topics in recent years is the proliferation of online lenders offering fintech cash advances, including the subset of those lenders who offer earned wage advances (EWA). These are very short-term loans of small dollar amounts that users can access through a smartphone app. Lenders that offer these products strenuously attempt to avoid being regulated like other lenders and rely on legal fictions to assert that their loans are not credit. These lenders also typically argue that their products further financial inclusion while, in reality, the worst versions of...

Comment on the CFPB’s Notice of Proposed Rulemaking on Overdraft Fees for Very Large Institutions

CRL submitted a comment on the CFPB’s Notice of Proposed Rulemaking on overdraft fees for very large institutions. We advocate for a $6 benchmark and safe harbor for courtesy overdraft fees. We argue the proposed rule is a required and important step towards better protecting consumers that would be greatly improved by eliminating the potential for financial institutions to evade the intent behind the exemption by further narrowing it to include parameters on: (1) limitations on the frequency and total number of overdrafts, (2) precluding fees for de minimis overdraft amounts, and (3)...

Recommendations on How FHA Should Shape Its Post-COVID Loss Mitigation Waterfall

The National Consumer Law Center, on behalf of its low-income clients, and the Center for Responsible Lending write with recommendations on how FHA should shape its post-COVID loss mitigation waterfall. As the market turns from a response to COVID-19 to identifying permanent policies informed by lessons learned from the pandemic, FHA has an opportunity to strengthen the options it makes available to homeowners facing hardship. FHA has shown leadership in developing innovative foreclosure alternatives that provide relief in any market condition. We believe FHA should build its long-term loss...

Coalition Opposing the Financial Services Innovation Act of 2023 (HR 7440)

This legislation purports to provide a safe harbor for financial innovation, but too often, “innovation” is synonymous with a lack of meaningful safeguards for consumer financial products. Creating these regulatory “sandboxes” for companies would force agencies to shirk their statutory duties to enforce the law and protect consumers and instead prioritize allowing risky and unproven products into the marketplace before they have been fully evaluated to ensure that they comply with the law and are safe for consumers to use.

Coalition Opposing Earned Wage Access Consumer Protection Act (HR 7428)

The 142 labor, civil rights, consumer, legal services and community groups and academics joined in this letter to express opposition to the draft Earned Wage Access Consumer Act. In the guise of offering protections, the bill obscures its true effect: to exempt fintech cash advances from the Truth in Lending Act, to endorse a form of loan that makes workers pay to be paid, and to facilitate new evasions by payday lenders. It is especially inappropriate to authorize a new class of fintech cash advances with costs imposed on lowwage workers, disproportionately impacting communities of color and...

Maximizing Impact: How a Simple Administrative Policy Shift Could Expand Access to Homeownership for Potential Buyers Repaying Student Loans Under the SAVE Program

The Department of Education’s newly launched income-driven repayment (IDR) program, “Saving on a Valuable Education (SAVE),” represents a significant step forward in improving the affordability of federal student loan repayments for millions of borrowers. SAVE accomplishes that goal by basing repayment on a realistic estimate of a borrower’s discretionary income considering the borrower’s family size and reducing the amount of income that applies to repayment by half. The plan also prevents unpaid interest from increasing a borrower’s loan balance and ensures that any remaining balance is...

Comment on Proposed Capital Rules and Their Impact on Mortgage Credit

The Center for Responsible Lending submitted a comment to the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) regarding the large bank regulatory capital rule. While we commend the Agencies for seeking input on this important topic, we have significant concerns with the existing proposal’s potentially chilling impact on portfolio mortgage lending by larger banking participants. As written, the proposed rule would significantly increase the capital required for...

Support for the Close the Shadow Banking Loophole Act

The undersigned organizations, which together represent a broad cross-section of regulated banks, credit unions, and consumer protection organizations, wrote a letter in thanks for introducing the Close the Shadow Banking Loophole Act, and to express their support for this critical legislation which would close the industrial loan company (ILC) loophole in current law. Americans for Financial Reform Bank Policy Institute Center for Responsible Lending Consumer Federation of America Credit Union National Association Independent Community Bankers of America Mid-Size Bank Coalition of America...

Joint Letter on the Veterans Assistance Servicing Purchase Program

The Center for Responsible Lending, Housing Policy Council, Mortgage Bankers Association, and National Consumer Law Center (on behalf of its low-income clients) wrote to the Department of Veteran Affairs (VA) to recommend that the VA pursue payment reduction targeting rather than interest rate targeting as part of their upcoming VA Servicing Purchase (VASP) loss mitigation option.

The Rent-A-Bank Scheme

In the 1990s payday lenders partnered with banks to create a practice known as Rent-a-Bank. This practice, which has now moved online, exploits a provision of federal law that allows banks to export their interest rates across the country, ignoring state laws meant to protect borrowers from abusive high-rate lending that can lead to a debt trap. Rent-a-Bank arrangements allow online lenders to exceed state limits on loans used to finance the purchase of everything from puppies to car repairs, including expensive debt consolidation loans made to people already struggling to meet their monthly...

Stop High-Cost Lenders from Evading State Laws: An Overview of Rent-a-Bank Schemes & the Simple DIDMCA Opt-Out Solution

In the 1990s payday lenders partnered with banks to create a practice known as Rent-a-Bank. This practice exploits a provision of federal law that allows banks to export their interest rates across the country, ignoring state laws meant to protect borrowers from abusive high-rate lending that can lead to a debt trap. While predatory lenders originally used store-front payday locations when this evasion scheme began, today’s high-cost lenders have moved their tactics online under the glossy facade of fintech innovation. These lenders are now trying to adapt their abusive high-cost lending...

Civil Rights Group Letter on Proposed CDFI Program–Certification Application and Annual Reporting

The Center for Responsible Lending, Leadership Conference on Civil and Human Rights, NAACP, National Association of Latino Community Asset Builders (NALCAB), National CAPACD, National Urban League, and UNIDOS US joined in a letter to support "that CDFI certification is truly reserved for mission-driven, community development organizations."

36% Cap on Annual Interest Rate Stops Payday Lending Debt Cycle

Payday loans, high-cost small loans averaging $350 that usually must be repaid in a single payment after two weeks, are designed to create a long-term debt trap for consumers. A 36% annual percentage rate (APR) cap on payday loans (including fees) is the best way to stop the cycle of debt. To date, 20 states and the District of Columbia have passed laws to cap payday lending rates around 36% APR or require other measures to ensure that payday lenders do not impose interest rates and financing terms that create a long-term debt trap for consumers. Since 2005, no state has authorized the...

Groups Urge DFPI to Prevent Consumer Harm in the Market for Income-Based Advances

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 with the Department on November 27. The groups “strongly support the provisions [of the proposed regulations] that make clear that income-based advances are loans and that...

Issue Brief: Consumer Understanding of Buy Now, Pay Later in California

Buy Now, Pay Later (BNPL) or pay-in-four products allow consumers to purchase goods in four equal, often interest-free installments over a set time period (often 6 weeks). BNPL is often available directly at checkout on an e-commerce website (like Amazon or Apple) or through a third-party smartphone or web application. Examples of third-party BNPL providers include Affirm, AfterPay, Klarna, Splitit, Sezzle, Paypal, Perpay, and Quadpay/Zip. While many BNPL providers also make installment loans that carry interest, this research paper addresses only products that meet the Consumer Financial...

Advocates Warn Earned Wage Access Bill Facilitates Fintech & Payday Lender Harm to Consumers

In a letter to the author of the Earned Wage Access Consumer Protection Act, advocates warn: "In the guise of offering protections, the bill obscures its true effect: to exempt fintech cash advances from the Truth in Lending Act, to endorse a form of loan that makes workers pay to be paid, and to facilitate new evasions by payday lenders." The bill, currently a discussion draft, was considered as part of a House Financial Services Subcommittee hearing "Modernizing Financial Services Through Innovation and Competition," held on October 25, 2023— a hearing that the Center for Responsible Lending...

Advocates Warn Financial Services Innovation Act Would Cause "Sahara Desert" of Consumer Protections

In a letter to the House of Representatives' Financial Services Committee, consumer advocates warn that the Financial Services Innovation Act of 2023 would facilitate evasion of existing consumer protection laws and regulations. Citing the foreclosure crisis around 2008 and other examples, the letter states: "Blind endorsement of 'innovations' leads to consumer harms." The bill, currently a discussion draft, was considered as part of a House Financial Services Subcommittee hearing "Modernizing Financial Services Through Innovation and Competition," held on October 25, 2023— a hearing that the...

Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances

Among the hottest consumer finance topics in recent years is the proliferation of online lenders offering fintech cash advances, including the subset of those lenders who offer earned wage advances (EWA). These are very short-term loans of small dollar amounts that users can access through a smartphone app. Lenders that offer these products strenuously attempt to avoid being regulated like other lenders and rely on legal fictions to assert that their loans are not credit. These lenders also typically argue that their products further financial inclusion while, in reality, the worst versions of...

State Policy Recommendations for Earned Wage Advances and Other Fintech Cash Advances

States are grappling with how to regulate earned wage advances (EWAs) and other fintech cash advances that purport not to be credit. These loans often closely resemble payday loans, with fees that multiply into rates above 300% and cycles of reborrowing that result in workers paying to be paid. State legislatures and regulators should not adopt industry-backed approaches, like those recently passed in Missouri and Nevada, that carve these loans out of state credit laws, including rate caps, and lack any meaningful substitute consumer protections. Instead, at the state level, the best policy...

Waiving Criminal Court Fees Prevents Harms of Civil Debt

Many people involved in the criminal legal system live on the economic margins. Most defendants are unable to hire their own lawyer due to indigency. In North Carolina, the average person in prison doesn’t have a high school diploma. The cost of involvement in the criminal legal system can quickly add up to thousands of dollars, but the people expected to pay these costs often don’t have the financial resources to do so. Debt that results from this involvement can be difficult or impossible for them to pay off. North Carolina law provides a number of ways for court officials to attempt to...

Voters Overwhelmingly Support the Consumer Bureau’s Mission Across Party Lines

New data from the bipartisan polling team Lake Research Partners and Chesapeake Beach Consulting shows that voters across the political spectrum overwhelmingly support the ongoing mission of the Consumer Financial Protection Bureau (CFPB) to regulate the financial industry and protect consumers. The survey also revealed strong support for maintaining the secure, independent funding mechanism for the CFPB. These new findings are consistent with over 10 years of opinion research demonstrating strong public support for the agency’s role and work. Voters are strongly supportive of a variety of...
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