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Government watchdog proposes crackdown on paycheck advance products

Products that help American workers access money before payday are under scrutiny by the federal government.
A businessperson giving a paycheck to someone.
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The Consumer Finance Protection Bureau proposed new rules on Thursday amid a stark rise in the use of paycheck advance products.

According to a report by the CFPB, at least 5% of American workers used a paycheck advance product in 2022. These products essentially provide workers with some of their paychecks days before their actual payday.

The CFPB noted that these plans come with fees and often have high interest rates.

The CFPB's proposal would change how these products are interpreted, requiring them to follow existing laws for payday loans. It would also require companies offering such products to disclose fees upfront.

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Government officials say that employer-backed programs are every bit as concerning as those pitched directly to consumers.

“Paycheck advance products are often marketed to and designed for employers, rather than employees,” said CFPB Director Rohit Chopra. “The CFPB's actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”

Although plans offered by employers are a concern, officials say programs that are marketed directly to workers also are unsettling.

"There is also a risk that workers may become financially overextended if they simultaneously use multiple earned wage products. Although this is unlikely within the employer-partnered market, it is possible that workers could use multiple direct-to-consumer products or use them in combination with employer-partnered products," the CFPB's report notes.

The CFPB said that use of these sorts of programs doubled between 2021 and 2022.

The agency is currently gathering comments and could issue finalized rules later this year.