Consumer Financial Protection Bureau letter validates Speaker Coughlin’s decision to hold legislation that could trap low-wage workers in a debt cycle.
January 19th, 2022
Trenton–New Jersey and national consumer advocates today applauded a letter from Consumer Financial Protection Bureau (CFPB) Acting General Counsel Seth Frotman stating that early wage access companies should not use a Trump-era advisory opinion from the CFPB to justify carve-outs and exemptions from state law for their loan products.
The letter came just weeks after New Jersey Assembly Speaker Craig Coughlin held legislation that would have allowed predatory payday lending companies to target low-wage workers and potentially trap them in a destructive cycle of debt. Frotman’s letter responded to a request from New Jersey Citizen Action, Appleseed New Jersey and Consumer Reports to CFPB Director Rohit Chopra to rescind the advisory opinion because it was being used by companies to justify bypassing state lending laws and consumer protections.
“We thank General Counsel Frotman for ensuring the Bureau’s advisory opinion is not used inappropriately to undermine important usury and consumer protections, and for recommending that the CFPB consider how to provide greater clarity on these types of issues,” said Beverly Brown Ruggia, Financial Justice Program Director for New Jersey Citizen Action. “Again, we applaud Assembly Speaker Craig Coughlin for recognizing the need to hold A3450/S3611 last session. The CFPB’s letter supports that decision and demonstrates the need for our Legislature to carefully consider any bills that might bypass state consumer protections.”
“New Jersey Appleseed welcomes this letter from the Consumer Financial Protection Bureau making clear that its November 30, 2020 advisory opinion regarding earned wage access programs is a very narrow one and cannot be cited to support legislation such as S3611/A3450,” said Renee Steinhagen, Executive Director of New Jersey Appleseed. “Those bills, which came close to passing in New Jersey during the just concluded legislative session, unlawfully refuse to acknowledge these programs for what they are — loans; and the CFPB letter should thus give legislators pause in reintroducing the same misguided legislation in the new session.”
“We find it highly concerning that New Jersey was considering fast-track legislation to charge workers to get a partial payroll advance,” said Chuck Bell, programs director for Consumer Reports. “Exempting earned wage advance programs from New Jersey’s banking and usury laws would empower employers, payroll and fintech companies to charge high fees to the state’s most vulnerable workers. With 25% of the state’s workers living paycheck to paycheck, this is a bread-and-butter survival issue for retail, restaurant, manufacturing and delivery workers who will be unfairly socked with hundreds of dollars in fees each year to get access to their own pay.”
The advocates noted that companies marketing high-cost small-dollar loans are working hard to obtain carveouts from good laws and regulations which they know apply to their products. The CFPB letter underscored the need for both New Jersey legislators and lawmakers throughout the country to be vigilant against laws that would allow fintech companies to target the most vulnerable of workers and charge them for access to their own earned pay.
“I am encouraged that the CFPB is taking a second look at its deeply flawed earned wage access advisory opinion, which, as we predicted, is being used to promote evasions by high-cost fintech credit products,” said Lauren Saunders, Associate Director, National Consumer Law Center.
“We appreciate today’s letter from the CFPB clarifying that an advisory opinion issued under the previous administration on Earned Wage Access products should not be used to justify products that violate state usury limits,” said Yasmin Farahi, Senior Policy Counsel, Center for Responsible Lending. “The letter makes clear that the CFPB’s opinion that certain products may not always be considered “credit” is limited, and does not apply to EWA products that carry any fee at all, even if that fee is presented as a voluntary tip. This clarification should help New Jerseyans and consumer advocates across the nation prevent fintech companies or predatory lenders from evading consumer protections by naming their payday loans Earned Wage Access. States should regulate all such products as credit and require compliance with consumer protections that prevent harmful predatory lending debt traps.”
New Jersey Citizen Action is a statewide advocacy and empowerment organization that advances social, racial and economic justice for all, while also meeting the pressing needs of low- and moderate-income New Jerseyans through education and direct services.