February 27, 2024 — Letter

Dear Rep. Steil,

The 142 undersigned labor, civil rights, consumer, legal services and community groups and academics write to express our opposition to HR 7428, regarding earned wage access services. In the guise of offering protections, the bill obscures its true effect: to exempt fintech cash advances from the Truth in Lending Act, to endorse a form of loan that makes workers pay to be paid, and to facilitate new evasions by payday lenders. It is especially inappropriate to authorize a new class of fintech cash advances with costs imposed on low wage workers, disproportionately impacting communities of color and women, when there are a growing number of options to obtain early pay at no cost

Earned wage advances are loans made to workers ahead of payday that are repaid on payday. The amount of the loan is tied to the wages that have been earned but are not due until payday. True earned wage advances are offered through employers, often with fees, but some employers offer early pay for free. Fake direct-to-consumer providers claim to be paying earned wages but have no connection to wages or payroll, are repaid by debiting bank accounts, and collect purportedly voluntary “tips.” Both models charge inflated expedite fees if the worker wants the advance quickly, which nearly everyone does.

California data based on nearly 6 million transactions shows how the costs of these advances add up. Including all of the costs, the average annual percentage rate (APR) for these advances is over 330% for both the employer-based companies that charge fees and for the companies that collect “tips.” Tip-based companies collected tips 73% of the time. Just three companies generated $17.55 million in tip revenue plus another $6.24 million in other fees, likely expedite fees, in 2021. Workers get very little credit, with a typical advance of $40 to $100 for 10 days. The fees add up, as the average worker takes out 36 loans a year, and as many as 100.

The bill would obscure the relative cost of these fintech cash advances.  It would exempt these loans from the Truth in Lending Act (TILA) and prevent the ability to compare high-cost earned wage advances to other credit options. It is no surprise that these fintech lenders, like traditional payday lenders, want to avoid disclosing a 330% APR, especially given the way the loans roll over and over. While the costs may vary, especially for the tip-based lenders, the apps through which the advances are made can easily adjust the APR to correspond to the amount of default tip that is inserted, or to any different amount that the consumer selects.  

The bill would facilitate evasion by payday lenders. The bill’s definition of “earned wage access service” would extend to any loan that is “based on the consumer’s representations and the provider’s reasonable determination of the consumer’s earned but unpaid income.” That vague definition could easily be exploited by traditional payday lenders.

The bill perpetrates the myth that these fintech cash advances are not credit. The bill would be used to persuade state legislators to enact the model bill by the American Legislative Exchange Council (ALEC) that would exempt these advances from state credit laws, including fee and rate caps. Asserting that these advances are not credit follows the path of traditional payday lenders, which established the payday loan industry by convincing legislators that their loans were not loans and fees were not interest but only a modest fee for deferring cashing of a check.

The bill would undermine or block coming guidance from the Consumer Financial Protection Bureau (CFPB) and facilitate new evasions by payday lenders.  The bill purports to give the CFPB authority to regulate these advances, but the CFPB already has ample authority.Indeed, the CFPB has told the General Accounting Office that it plans to clarify the treatment of earned wage advances under TILA. The CFPB’s then-Acting General Counsel Seth Frotman warned two years ago that earned wage advances that charge any kind of fee, voluntary or not, “may well be TILA credit.” The bill would limit the CFPB’s options in how to ensure that consumers receive clear information and how to prevent evasions of federal lending laws.

The protections in the bill are not meaningful. The bill purports to offer a number of protections that would apply to fintech cash advances. But the bill largely codifies lenders’ current business model without adding significant new protections. Companies do not need to file civil suit, use third-party debt collectors or sell to debt buyers when they are able to collect 97% of the time through their stranglehold over the consumer’s paycheck or bank account. The bill requires compliance with the Electronic Fund Transfer Act, but the EFTA’s ban on compulsory repayment of credit by preauthorized electronic fund transfer would not apply if the advances are not deemed to be credit. The bill limits certain repercussions of not tipping enough but does not stop all of the “multiple strategies that lenders use to make tips almost as certain as required fees.”

The costs of fintech cash advances fall primarily on low-wage workers who need a living wage, not a product that just makes them pay to be paid.  Balloon-payment loans should not be exempted from credit laws, however, they are styled, as they merely lead to a cycle of reborrowing where each advance repays the previous one without providing new liquidity.

For these reasons, we oppose HR 7428 regarding earned wage access services.

Yours very truly,

National

AFL-CIO

American Economic Liberties Project

American Federation of Teachers

Americans for Financial Reform

Appleseed Foundation

Center for Responsible Lending

Center for WorkLife Law

Coalition of Labor Union Women

Coalition on Human Needs

Consumer Action

Consumer Federation of America

Consumer Reports

Consumers for Auto Reliability and Safety

Equal Rights Advocates

Impact Fund

Japanese American Citizens League (JACL)

The Leadership Conference on Civil and Human Rights

MomsRising

NAACP

National Association of Consumer Advocates

National Association for Latino Community Asset Builders

National Center for Law and Economic Justice

National Coalition for the Homeless

National Community Action Partnership

National Consumer Law Center (on behalf of its low-income clients)

National Education Association

National Employment Law Project

National Employment Lawyers Association

National Institute for Workers’ Rights

National Partnership for Women & Families

National Urban League

National Women’s Law Center

NETWORK Lobby for Catholic Social Justice

Public Citizen

Public Counsel

Public Good Law Center

Public Justice

Restaurant Opportunities Centers United

Service Employees International Union (SEIU)

Sugar Law Center for Economic and Social Justice

U.S. PIRG

UnidosUS

Young Invincibles

20/20 Vision

Alaska

AKPIRG

Arizona

Center for Economic Integrity

Society of St. Vincent de Paul, Tucson Diocesan Council

UFCW Local 99

California

California Low-Income Consumer Coalition (CLICC)

Consumer Federation of California

Long Beach Alliance for Clean Energy

Office of Kat Taylor

Prof. Alysson Snow, University of San Diego School of Law, Housing Rights Legal Clinic*

Public Law Center

Rise Economy (formerly California Reinvestment Coalition)

Colorado

Bell Policy Center

CoPIRG

Towards Justice

Connecticut

Connecticut Legal Services, Inc.

Prof. Annie Harper, Yale School of Medicine Department of Psychiatry*

Delaware

Delaware Community Reinvestment Action Council, Inc.

District of Columbia

Tzedek DC

Workplace Fairness

Florida

Florida Consumer Action Network

Georgia

Georgia Watch

Sur Legal Collaborative

Illinois

Shriver Center on Poverty Law

Indiana

Indiana Community Action Poverty Institute

Prosperity Indiana

Kentucky

Kentucky Equal Justice Center

Louisiana

New Hope Collaborative

Maine

Maine People’s Alliance

Maine Small Business Coalition

Maryland

1199SEIU MD/DC

CASH Campaign of Maryland

Economic Action Maryland

Public Justice Center

Massachusetts

Sciencecorps

Minnesota

Minnesotans for Fair Lending

Nebraska

Nebraska Appleseed

Nevada

UNITE HERE Culinary Workers Union, Local 226

Legal Aid Center of Southern Nevada

Nevada Coalition of Legal Service Providers

Nevada Legal Services, Inc.

Progressive Leadership Alliance of Nevada

New Jersey

BlueWaveNJ

Legal Services of New Jersey

New Jersey Appleseed Public Interest Law Center

New Jersey Citizen Action

NJ Time to Care Coalition

New York

Center for Elder Law & Justice

Cypress Hills Local Development Corp.

Empire Justice Center

Genesee Co-op Federal Credit Union

Mobilization for Justice

New Economy Project

New York StateWide Senior Action Council

New Yorkers for Responsible Lending

Strycker’s Bay Neighborhood Council

Western New York Law Center

North Carolina

Charlotte Center for Legal Advocacy

The Collaborative

NC Coalition for Responsible Lending

North Carolina Council of Churches

North Carolina Justice Center

Pisgah Legal Services

Rebuilding Broken Places CDC

Ohio

Advocates for Basic Legal Equality

Cincinnati Interfaith Workers Center

Legal Aid Society of Southwest Ohio, LLC

Prof. Cathy Lesser Mansfield, Case Western Reserve University School of Law*

Oklahoma

Voices Organized in Civic Engagement (VOICE)

Oregon

Oregon Consumer Justice

Pennsylvania

Community Legal Services of Philadelphia

Justice at Work Pennsylvania

Rhode Island

Economic Progress Institute

South Carolina

Columbia Consumer Education Council Inc

South Carolina Appleseed Legal Justice Center

Texas

Brazos Valley Affordable Housing Corporation

BV Financial Fitness Center

cdcb | come dream. come build.

Center for Transforming Lives

COPS/Metro Alliance

Dallas Area Interfaith

Equal Justice Center

RAISE Texas

Texas Appleseed

The Metropolitan Organization (TMO)

United Way of Central Texas

United Way of Metropolitan Dallas

United Way of Tarrant County

United Ways of Texas

Valley interfaith

Zan Wesley Holmes, Jr Community Outreach Center

Virginia

Legal Aid Justice Center

Virginia Citizens Consumer Council

Virginia Poverty Law Center

Washington

Economic Opportunity Institute

Unemployment Law Project

*Organization listed for identification only.