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payday lending
CFPB Aims to Protect Workers From Paycheck Advance Fees
"The CFPB's actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices," said the director of the bureau.
Jul 18, 2024
With inflation rising in recent years, driven by corporate greed according to numerous analyses, the number of people in the U.S. who have relied on paycheck advance products has skyrocketed—but a rule introduced Thursday by the Consumer Financial Protection Bureau is aimed at ensuring that lenders who provide these products are transparent with financially struggling workers about the fees they can incur.
The CFPB proposed a rule clarifying that paycheck advances, sometimes marketed as "earned wage" products, are consumer loans and are therefore subject to the Truth in Lending Act.
The federal law requires lenders to disclose all fees, interest, and total costs consumers will incur before they use the product.
According to a study released by the CFPB as it announced the new proposed rule, the number of paycheck advance transactions processed by employer-partnered firms ballooned by 90% from 2021-22. More than 7 million workers used paycheck advances to access $22 million over that time period in order to pay for their housing, utilities, and other essentials.
The study notes that "the mismatch between when a family receives income and when a family must make payments for expenses" is a major driver of demand for consumer credit and other products like paycheck advances.
"To reduce their costs, employers have a strong incentive to delay the payment of compensation to workers, which drives demand for short-term credit," reads the analysis.
As such, said Rohit Chopra, director of the CFPB, paycheck advances "are often marketed to and designed for employers, rather than employees."
"The CFPB's interpretive rule will level the playing field and promote competition among short-term small-dollar lenders."
"The CFPB's actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices," he said.
Th bureau's report focuses on employer-sponsored paycheck advances, which have been increasingly used over and over by the same workers. Employees took out an average of 27 paycheck advance loans per year, according to the CFPB, with the average transaction totaling $106.
"The share of workers in our sample using the product at least once a month increased from 41% in 2021 to nearly 50% in 2022," wrote the CFPB.
The bureau noted that while employers sometimes make paycheck advances fee-free for their employees, workers usually pay fees themselves, including expedited service fees and "tips" that the online services request when completing the transaction.
In the sample the CFPB reviewed, employers paid for less than 5% of the fees incurred by workers
"Across our sample of surveyed companies, in 2021 and 2022, roughly 90% of workers paid at least one earned wage product-related fee," said the bureau. "Among the companies in our sample that collect fees, the average cost per transaction ranged from $0.61 to $4.70. When workers paid a fee, the average size was approximately $3.18. Workers paid an average of $68.88 per year in fees."
Some services provide subscriptions for workers who used paycheck advances regularly; those who utilize them can pay as much as $14.99 per month in subscription fees, according to the CFPB.
"In recent years, workers have seen big increases in wages, but junk fees and high rates on financial products not only chip away at these gains—they take advantage of workers," acting Labor Secretary Julie Su said in a statement.
Adam Rust, director of financial services for the Consumer Federation of America, said the proposed rule shows that "an advance on wages is still a loan that has to be repaid, and no amount of hair-splitting can change it."
"Workers have always relied on wages to repay advances from lenders," said Rust. "Policymakers should be skeptical whenever lenders insist on regulatory exemptions from rules that apply to their competitors. The CFPB's interpretive rule will level the playing field and promote competition among short-term small-dollar lenders."
The CFPB is among several federal agencies that right-wing operatives, many of whom worked in the Trump administration, have pledged to abolish under the policy agenda Project 2025.
Under the Biden administration, in addition to taking aim at paycheck advances, the CFPB has proposed a rule to cap credit card late fees at $8, a move that would save Americans $10 billion per year; prevented discrimination by small business lenders; and fined Wells Fargo $3.7 billion for illegal activity.
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'Shameless Corporate Shill' Mick Mulvaney Tells SCOTUS to Destroy Agency Trump Let Him Lead
"It's time to stop pretending this case is anything but a brazen power grab by corporate criminals and their loyal bagmen," one researcher said of a payday lender trade association's attack on the CFPB's funding structure.
Jul 11, 2023
Critics of Mick Mulvaney are calling out the former Republican congressman and Trump administration official this week for submitting an amicus brief to the U.S. Supreme Court urging the justices to gut a federal agency he once directed.
The case Mulvaney weighed in on Monday, Community Financial Services Association of America (CFSA) v. Consumer Financial Protection Bureau (CFPB), involves the payday lender trade association challenging the agency's funding structure.
After then-President Donald Trump appointed him as acting director of the CFPB in November 2017, Mulvaney spent the next year trying to sabotage it. He was fiercely criticized, with U.S. Sen. Elizabeth Warren (D-Mass.), who played a key role in establishing the bureau, saying in 2018 that "this is what happens when you put someone in charge of an agency they think shouldn't exist."
Revolving Door Project senior researcher Vishal Shankar said in a statement Tuesday that "by authoring an amicus brief supporting his former campaign donor, Mick Mulvaney has again proven himself to be a shameless corporate shill."
"As a congressman and CFPB director, Mulvaney repeatedly tried to kill the CFPB after raking in whopping sums from big banks and predatory lenders who wanted the bureau dead," Shankar noted. "Now, with the help of his disgraced former lieutenant, Mulvaney wants SCOTUS to finish the job. It's time to stop pretending this case is anything but a brazen power grab by corporate criminals and their loyal bagmen."
"As a congressman and CFPB director, Mulvaney repeatedly tried to kill the CFPB after raking in whopping sums from big banks and predatory lenders who wanted the bureau dead."
Mulvaney's brief—which names Eric Blankenstein, a Trump appointee who resigned from the CFPB in 2019 over racist blog posts, as one of his two attorneys—claims that "how the CFPB is funded is contrary to the separation of powers that undergirds our entire system of constitutional government."
"It gives a single director control over hundreds of federal workers and hundreds of millions of dollars," the document states. "It deprives Congress of any meaningful oversight of one of the most impactful federal financial services regulators. By extension, it denies the American citizenry the opportunity to effect change, even if a majority of them want to do so."
Accountable.US spokesperson Jeremy Funk warned in response to the filing on Monday that "if the Supreme Court gives those with an ax to grind against the CFPB what they want, it will likely lead to the worst rollback of consumer protections in U.S. history."
"Financial industry stooge Mick Mulvaney and hate crime denier Eric Blankenstein may be the least credible former Trump officials to weigh in on whether the CFPB should keep protecting consumers from industry abuse and discrimination," Funk declared.
"If the idea is to make predatory lenders who filed this baseless lawsuit look good in comparison, these would be the right-wing trolls to do it," he continued. "It says it all about the merits of this case that it's being pushed by a coalition of predatory lenders, industry money chasers, an author of racist internet ravings, and a seminal architect of the insurrection."
Among the other backers of the CFSA's argument is former Trump attorney John Eastman, infamous for his contributions to the former president's "Big Lie" about the 2020 election, which led to the January 6, 2021 attack on the U.S. Capitol.
Along with also taking aim at Mulvaney—who was hired as a CBS contributor last year—experts at the Revolving Door Project have blasted Eastman's brief.
"If the CFPB weren't so popular, corrupt bankers and their proxy members of Congress would have succeeded in killing it legislatively," Jeff Hauser, the project's executive director, said Tuesday. "Since the CFPB is too popular to take on legislatively, sellout has-beens like Mulvaney and Blankenstein are shifting to Plan B, seeking action by a judiciary which is as corrupted by big money as it is blinded by right-wing zealotry."
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Private Equity Is Turbocharging Damage of Payday Lending Industry
Payday lending is inherently predatory and private equity is turbocharging its abuses, enlarging the burden it places on low-income individuals and borrowers of color.
Jan 14, 2023
Predatory lending is an easily overlooked business that has damaged communities of color and poorer people for decades. It traps borrowers in never-ending cycles of debt with high-interest loans on coercive terms. But when Wall Street private equity gets in on the predatory lending industry, it amplifies the magnitude of financial exploitation.
Private equity, put simply, is supercharging the payday and predatory lending industries as it does in any other industry. Private equity has the money — big money — to buy control of lenders and reach more people with greater levels of abuse than they could before. That means more of the infamous debt traps that characterize predatory lending.
Over the last decade, private equity brought additional financial resources, and in some cases, a new level of sophistication, to the subprime lenders they acquired, often enabling the payday and installment lenders they acquire to buy competitors. Only a few months ago, private equity firm Park Cities Asset Management took control of Elevate Credit.
Elevate is a notorious predatory lender. “Elevate raked in over a half billion dollars in 2013 alone. And they showered over $210,000 of that cash on federal lobbyists to attempt to hinder regulations of the payday loan industry,” according to the website Payday Lending Facts. In August 2022, a federal judge in Virginia gave final approval to a settlement involving Elevate Credit, where the company agreed to pay $33 million to resolve litigation related to a predecessor company’s dealing with various tribes.
Private equity firms own more than 5,000 payday lending stores in America and provide capital for several startups’ online payday loans, a 2017 report from Americans for Financial Reform showed. The predatory lender, Mariner Finance, had only 57 branches in seven states in 2013. It now has roughly 480 branches in 22 states, nearly a decade after the Wall Street private equity firm Warburg Pincus – headed by former U.S. Treasury Secretary Tim Geithner – acquired it. In addition to that financial power, private equity has access to bond markets to fuel its expansion.
Private equity firms Diamond Castle Holdings and Golden Gate Capital merged Checksmart Financial and California Check Cashing Stores into Community Choice Financial in 2011, and over the years, acquired or rolled up other companies like CURO and Direct Financial Solutions to build what is now a network of nearly 500 locations nationwide.
Predatory lenders owned by private equity firms create incentives for their employees to mislead consumers on loan requirements. Private equity firms often pressure employees at predatory lenders they own to sell what are known as “add-on products.” For example, a lender may insert credit insurance on auto or personal loans or try to add high service fees.
"Mariner’s policies and business practices are set and directed by headquarters, leaving minimal discretion to branch managers and loan officers to extend loans that work best for consumers according to their needs and financial condition,” Pennsylvania Attorney General Josh Shapirowrote in a 2022 lawsuit against Mariner Finance. “The primary directive is to sell.”
For example, finance companies like predatory lenders often charge consumers all payments for any add-on products as a lump sum at origination. Essentially, even if a product expires years earlier during the loan term, consumers are still required to make payments on these add-ons. They often use illegal debt collection tactics to create a false sense of urgency to lure overdue borrowers into payday debt traps. Private equity-owned payday lender, ACE Cash Express, was one of the first companies in 2014 to be fined by CFPB for that business practice.
Mariner Finance, which specializes in personal loans of $1,000 to $25,000, with interest rates of up to 36 percent that can be inflated by additional fees. Fortress Investment Group owns similar installment lender OneMain Financial, while the Blackstone Group ― founded by billionaire Stephen Schwarzman ― controls Lendmark Financial Services, which in general, charge up to 30 percent in interest rates for its loans.
Payday loan lenders commonly charge fees of $15 for every $100 borrowed, which equals a 400 percent interest rate for a two-week loan. They prey on low-income and minority borrowers with arbitrary fees that are often more than what is permitted by their local states. “A high rate isn’t automatically a form of predatory lending—it may be higher because of your creditworthiness—but an unusually high one is definitely a red flag,” attorney Andrew Pizor with the National Consumer Law Center pointed out.
Predatory lenders target Black borrowers specifically. In Houston, while African-Americans make up only 15.6 percent of auto title lending customers and 23 percent of payday lending customers, 34.8 percent of the photographs on these lenders’ websites depict African-Americans, per a 2021 study by Jim Hawkins and Tiffany C. Penner of the University of Texas. Black Americans make up roughly 13 percent of the total American population, but end up with 23 percent of all storefront payday loans,” Pew Trusts reported.
Payday lending is inherently predatory and private equity is turbocharging its abuses, enlarging the burden it places on low-income individuals and borrowers of color. About 18 states across the country have a 36 percent rate cap or below to fight this problem, but many predatory lenders operate nationally. Congress must step in with a usury cap that applies nationwide. Stronger protections are the only way to stop the damage caused by predatory lenders, who now increasingly have the financial muscle of private equity behind them.
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