CFPB Proposes Rule for Payroll Advance Products

The Consumer Financial Protection Bureau (CFPB) argued that many payroll advance products, also marketed as “earned pay” products, are consumer loans subject to the Truth in Lending Act. The proposed rule thus ensuring that lenders understand their legal obligations to disclose the costs and fees of these loan products to employees.

In addition to the interpretive rule, the CFPB also released a report examining employer-sponsored payroll advance loans, which informed the bureau’s guidance.

The report found the following:

• Employees who use these employer-sponsored products take out an average of 27 such loans per year;
• The typical employer loan has an annual percentage rate (APR) of over 100%;
• Many workers pay fees to receive their wages early: More than 90% of workers paid at least one fee in 2022, even though employers did not cover the cost;
• Workers may even pay monthly subscription fees (up to $14.99) and often make payments that providers call “tips”;
• The market for employer partnership salary advance products is growing rapidly.

In May of this year, the CFPB proposed a new rule stating that pay now pay later (BNPL) lenders should be treated like credit cards.