The Consumer Financial Protection Bureau (CFPB) has suggested an interpretive rule to ensure that lenders’ legal obligations to disclose the costs of paycheck advance products are met. In a bid to guarantee that workers are aware of the costs and fees of paycheck advance products, the CFPB proposed an interpretive rule in which it explains that these are consumer loans subject to the Truth in Lending Act.

The rule is set to also address the unusual practice of workers tipping their lender or employers, as well as to ensure fair competition in the market. Moreover, the suggested interpretive rule focuses on clarifying that existing law applies to this emerging product market, replacing a 2020 advisory opinion that referred to a specific paycheck advance product no longer common in the current market. The CFPB’s rule explains that the majority of paycheck advance products, even if they are offered via employer partnerships or marketed directly to borrowers, set obligations under the federal Truth in Lending Act.

The current move comes after a set of in-depth analysis conducted by the CFPB, including investigations, market monitoring, coordination with state regulatory bodies, and fact-finding with lenders, employers, and consumer advocacy groups. Additionally, the regulator seeks the public to submit comments on the interpretive rule to advise whether more clarifications are required. The CFPB mentions that comments are set to be accepted until 30 August 2024.

The CFPB’s proposed interpretive rule Besides the aforementioned clarifications, the CFPB’s proposed interpretive rule explains the following: Fees for particular tips and expedited delivery meet the Truth in Lending Act’s standard for being considered finance charges, while when the paycheck advance product is no-fee and bears no cost to the employee, many requirements would not apply; In addition to other requirements, earned wage lenders are required to offer workers appropriate disclosure about the finance charges. Through this, borrowers can understand and compare loan options, with clear disclosures also increasing price competition and benefiting firms that provide viable products. Furthermore, the CFPB is currently examining options for workers to access and permission their payroll data, with the move aiming to facilitate more competition for paycheck advance products and other loans. The action is part of a broader effort to encourage competition and safeguard personal data in the US.

.