Consumer Financial Protection Bureau proposes rule requring paycheck advance cost disclosures

July 18 (UPI) -- The Consumer Financial Protection Bureau Thursday proposed a new rule treating paycheck advance products as consumer loans under the Truth In Lending Act in an effort to help workers understand the actual costs.

The rule would require lenders to disclose the actual costs and fees when workers take paycheck advances often marketed as "earned wage" products.

When workers get that money they have to pay fees, not just repay the money advanced. The new rule says those fees are often finance charges, subject to regulation.

"Paycheck advance products are often marketed to and designed for employers , rather than employees," said CFPB Director Rohit Chopra in a statement. "The CFPB's actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices."

The new proposed rule would explain how the law applies to paycheck advance loans and make clear that these loans trigger Truth In Lending Act obligations.

The rule also seeks to help workers who borrow paycheck advances better understand and compare different paycheck advance products.

The paycheck advances sometimes refer to charges as "tips."

But the CFPB's proposed rule says since they are paid in connection with extension of credit, "under certain circumstances, 'tips' and similarly styled consumer payments may be 'imposed directly or indirectly by the creditor' such that they are part of the finance charge."

A CFPB report examining employer-sponsored paycheck advance loans found workers who take these loans do so an average of 27 times a year at typical annual interest rates over 100%.

"In recent years, workers have seen big increases in wages, but junk fees and high rates on financial products not only chip away at these gains -- they take advantage of workers," Acting Labor Secretary Julie Su said in a statement. "As part of the most pro-worker, pro-union administration in history, here at the Department of Labor, we proudly support efforts by the CFPB to guard against predatory lending in the workplace."

The CFBP said nearly three-quarters of American workers get paid every two weeks or monthly. Workers turn to paycheck advance loans due to a mismatch between when they get their compensation and when expenses must be paid.

"Earned wage products provide consumers with 'the right to defer payment of debt or to incur debt and defer its payment' because they incur a 'debt' when they obtain money with an obligation to repay via an authorization to debit a bank account or using one or more payroll," the rule says.

The CFPB rule says it doesn't matter that the repayment obligation "is sometimes satisfied via payroll deduction." It is still repayment, so it qualifies as a loan under the law.

When workers are paid wages no later repayment is required, by deduction or otherwise.