Consumer advocates are calling on the CFPB to curb the prepayment companies


Headquarters of the Consumer Financial Protection Bureau in Washington, DC REUTERS / Andrew Kelly

  • Lawyers send letter to new CFPB director Rohit Chopra regarding access to earned wages
  • They argue that EWA carries risks and should be regulated as a loan

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(Reuters) – Dozens of proponents have urged the U.S. Consumer Financial Protection Bureau to regulate products for access to earned wages as a form of credit, arguing that giving money to workers before payday carries unaddressed risks.

In the letter to Rohit Chopra, the was sworn in On Tuesday, as director of the agency, 96 advocates, including the National Consumer Law Center, urged the CFPB to repeal Trump-era legal guidance that said some products of access to earned wages or EWA products were made under consumer protection laws shouldn’t count as credit.

EWA companies pay employees either directly or as a benefit through their employers. The companies describe themselves as a sustainable alternative to high-interest payday loans and overdrafts.

In your Letter and a legal memo, argued consumer advocates that workers who use the programs tend to do so consistently week after week, which puts them on a financial treadmill where even small fees, such as speeding up payments, can add up.

“In the end, consumers can simply end up in a situation where they routinely pay to get paid,” they wrote.

A spokesman for the CFPB said Tuesday the agency had received the letter. “We appreciate the contribution of this coalition on this issue,” said the spokesman.

James Kim, a partner at Ballard Spahr, who advises fintech companies, said Tuesday that the requirement to view EWA as credit does not differentiate between products that have different properties.

“Lumping it all together and saying that we should collectively conclude that they are all credit or not is a mistake,” he said.

In addition to traditional lenders, the EWA industry has occupied a regulatory gray area.

In November, a memo from the CFPB director at the time, Kathleen Kraninger, stated that EWA products had certain characteristics, e.g.

Lawyers called for the order to be lifted Tuesday, saying its legal rationale creates a “slippery slope” that could be used to undermine consumer legal protection.

They noted that the CFPB had issued a statement in December that Payactiv Inc.’s EWA product is not a credit, although it does charge attendees small fees in some cases. The agency should also reconsider this approval, they said.

Proponents also said the CFPB should abandon the advisory program that allowed Payactiv to seek opinion, calling it inappropriate for the agency to approve certain products.

Payactiv’s general counsel, Aaron Marienthal, said Tuesday that the company was reviewing the letter.

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