Coalition: Regulate Fintech Cash Advances Now

Advocates say four years is too long to wait for key consumer protection

A coalition of consumer advocates is cheering a new California regulation that limits interest rates on cash advances provided by certain fintech products. But, the group says the new rules should apply immediately rather than with the currently allowed four-year grace period.

California's Department of Financial Protection and Innovation (DFPI) has issued rules around the cost of fintech cash advances (products like Dave and Brigit, for example) that limit interest rates and prevent excessive costs incurred through tipping features.

However, companies can avoid strict compliance with the rate caps by simply registering with DFPI now and coming to full compliance with all applicable laws within four years.

The coalition, including the National Consumer Law Center (NCLC) and the Consumer Federation of California said consumers deserve protection now and should not have to wait four years for the full benefits of the new regulation.

“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.

Photo byBrett JordanonUnsplash