April 16, 2024 — Letter

The 192 undersigned labor, civil rights, consumer, legal services and community groups and academics write to express our opposition to HR 7428 (Steil), the Earned Wage Access Consumer Protection Act. 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.1 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.

HR 7428 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.

HR 7428 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 the HR 7428 regarding earned wage access services.

Yours very truly,

20/20 Vision
American Economic Liberties Project
American Federation of Teachers
American Friends Service Committee
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
National Association for Latino Community Asset Builders
National Association of Consumer Advocates
National Center for Law and Economic Justice
National Coalition for Asian Pacific American Community Development (National CAPACD)
National Coalition for the Homeless
National Community Action Partnership
National Consumer Law Center (on behalf of its low-income clients)
National Consumers League
National Disability Rights Network (NDRN)
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
Prosperity Now
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
Workplace Fairness
Young Invincibles

Center for Economic Integrity
Society of St. Vincent de Paul, Tucson Diocesan Council
UFCW Local 99
William E. Morris Institute for Justice
California Low-Income Consumer Coalition (CLICC)
CAMEO- California Association for Micro Enterprise Opportunity
Consumer Federation of California
Legal Assistance for Seniors
Lift to Rise
Long Beach Alliance for Clean Energy
Mission Asset Fund
Office of Kat Taylor
Prof. Alysson Snow, University of San Diego School of Law, Housing Rights Legal Clinic*
Prof. Scott Maurer, Katharine & George Alexander Community Law Center*
Prof. Steven M. Graves, California State University, Northridge*
Public Law Center
Rise Economy (formerly California Reinvestment Coalition)
Bell Policy Center
The One Less Foundation
Towards Justice
Connecticut Legal Services, Inc.
Prof. Annie Harper, Yale School of Medicine Department of Psychiatry*
Delaware Community Reinvestment Action Council, Inc.
District of Columbia
DC Consumer Rights Coalition
Prof. Emeritus Arthur E. Wilmarth, Jr., George Washington University Law School*
Tzedek DC
Florida Consumer Action Network
Jacksonville Area Legal Aid, Inc.
Georgia Watch
Neighborhood Improvement Association
Prof. Emeritus Mark Budnitz, Georgia State University College of Law*
Sur Legal Collaborative
Prof. Lea Krivinskas Shepard, Loyola University Chicago School of Law*
Prof. Thomas L. Eovaldi, Northwestern Pritzger School of Law*
Shriver Center on Poverty Law
Indiana Community Action Poverty Institute
Prosperity Indiana
Kentucky Equal Justice Center
New Hope Collaborative
Maine People’s Alliance
Maine Small Business Coalition
CASH Campaign of Maryland
Economic Action Maryland
Prof. Jeff Sovern, University of Maryland Francis King Carey School of Law*
Prof. Jodi Frey, University of Maryland, School of Social Work*
Public Justice Center
Lawrence CommunityWorks, Inc.
Neighborhood Developers, The
Minnesotans for Fair Lending
Phyllis Wheatley Community Center
Prof. Prentiss Cox, University of Minnesota Law School*
Nebraska Appleseed
Legal Aid Center of Southern Nevada
Nevada Coalition of Legal Service Providers
Nevada Legal Services, Inc.
Progressive Leadership Alliance of Nevada
UNITE HERE Culinary Workers Union, Local 226
New Jersey
Communities First initiative
CWA Local 1081
Legal Services of New Jersey
New Jersey Appleseed Public Interest Law Center
New Jersey Citizen Action
NJ Time to Care Coalition
New Mexico
KWH Law Center for Social Justice and Change
Prof. Nathalie Martin, University of New Mexico School of Law*
New York
Center for Elder Law & Justice
Cypress Hills Local Development Corp.
Empire Justice Center
Eno Awotoye, Retail Action Project
Genesee Co-op Federal Credit Union
Long Island Housing Services, Inc.
Lower East Side People’s FCU
Mobilization for Justice
New Economy Project
New York Public Interest Research Group (NYPIRG)
New York StateWide Senior Action Council
New Yorkers for Responsible Lending
Prof. Dora Galacatos, Fordham Law School Feerick Center for Social Justice*
Prof. Edward J. Janger, Brooklyn Law School*
Prof. Marianne Artusio, Touro Law Center*
Prof. Norman I. Silber, Maurice A. Deane School of Law, Hofstra University*
Prof. Susan Block-Lieb, Fordham Law School*
Rural Law Center of New York
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
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*
Voices Organized in Civic Engagement (VOICE)
Oregon Consumer Justice
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
South Carolina Association for Community Economic Development
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
Houston Area Urban League, The
Prof. Neil L. Sobol, Texas A&M University School of Law*
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
Prof. Christopher L. Peterson, University of Utah, S.J. Quinney College of Law*
Prof. Jacob S. Rugh, Brigham Young University*
Legal Aid Justice Center
Virginia Citizens Consumer Council
Virginia Organizing
Virginia Poverty Law Center
Economic Opportunity Institute
Unemployment Law Project
Wenatchee for Immigrant Justice
West Virginia
WV Citizen Action
Wisconsin Indigenous Economic Development Corporation

*Organization listed for identification only.