Consumer groups have urged the CFPB to tighten controls on pay advance firms
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- Advocates send letter to new CFPB director Rohit Chopra urging him to reconsider his appointment as a director.
- EWA, they argue, is unsuitable for credit and is not suitable for EFA. They rebut the argument that E WA poses risks and should be regulated as credit.
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Dozens of supporters have called on the Consumer Financial Protection Bureau to regulate earned wage access products as a form of credit, arguing that fronting money to workers before payday poses unaddressed risks.
96 advocates, including the National Consumer Law Center, urged the CFPB to rescind Trump-era legal language that said some earned wage access, or EWA, products should not be considered credit under consumer protection statutes in the letter to Rohit Chopra, who was sworn in as the agency's director on Tuesday.
Employers who work with EWA pay their workers either directly or as a benefit through their employers. The firms describe themselves as a sustainable alternative to high-risk payday loans and bank overdrafts.
Consumer groups argued in their letter and legal document that workers who use the tools do so consistently, week after week, putting them on a financial treadmill where even small fees to expedite payments, for example, can add up.
Consumers may in the end simply end up in a situation where they are routinely paying to be paid," they said.
A spokesperson for the CFPB said on Tuesday that the letter was received. "We appreciate this coalition's input on this issue," the spokesperson stated.
James Kim, a partner at Ballard Spahr who advises fintech firms, said on Tuesday that the call for EWA to be considered credit does not distinguish between the products, which have distinct features.
"To lump it all together and say that collectively we should conclude they are all credit or not credit is a mistake," he added.
The EWA industry has occupied a regulatory gray area adjacent to traditional lenders.
In November, then-CFPB director Kathleen Kraninger wrote in a memo that EWA products with certain features, such as those that don't collect payment from workers, aren'' t credit, but rather resemble accelerated worker pay cycle.
The advocates on Tuesday urged that the order be reversed, arguing its legal reasoning creates a "slippery slope" that may be used to undermine consumer legal protections.
They cited the CFPB's December opinion that Payactiv Inc' EWA product is not credit, although it charges participants in some instances little fees. They also said that the agency should consider revisiting this decision.
The advocates also argued that the CFPB should discontinue the advisory program that allows Payactiv to seek the opinion, saying that it is inappropriate for the agency to approve specific pharmaceuticals.
Payactiv's General Counsel, Aaron Marienthal, said on Tuesday that the business is reviewing the letter.
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Jody Godoy is a writer who works in banking and securities law. Reach her at email@example.com or firstname.lastname@example.org.