The Consumer Financial Protection Bureau (CFPB) argued that many paycheck advance products, also marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. The proposed rule will thus ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to employees. Alongside the interpretive rule, the CFPB additionally released a report examining employer-sponsored paycheck advance loans, which prompted the bureau’s guidance. The report found that:

Workers using these employer-sponsored products take out an average of 27 such loans per year; The typical employer-sponsored loan carries an annual percentage rate (APR) over 100%; Many workers are paying fees to get wages early: More than 90% of workers paid at least one fee in 2022 when employers do not cover the costs; Workers may even pay monthly subscription fees (as much as $14.99) and often make payments that providers characterize as “tips; The market for employer-partnered paycheck advance products is growing rapidly.

In May this year, the CFPB proposed a new rule outlining that buy now pay later (BNPL) lenders should be treated like credit cards.