Consumer Advocates Call on California to Rein-in Triple Digit Interest Rates on Earned Wage Access Loans

Advocate Andy

Groups applaud move to regulate fintech lenders, call for greater consumer protections

A pair of consumer advocacy groups is calling on the California Department of Financial Protection and Innovation (DFPI) to take steps to rein-in interest rates on so-called Earned Wage Access loans.

At the same time, the Center for Responsible Lending (CRL) and the National Consumer Law Center (NCLC) praised California regulators for taking the first steps toward regulating these relatively new fintech lenders.

The two groups provided comments on new proposed regulations and suggested that while the proposal would benefit borrowers, there are still risks of excessive interest rates.

“The DFPI is doing the absolute right thing by capping interest rates on earned wage advances and other fintech cash advances, just as we do other forms of credit,” said Andrew Kushner, policy counsel for Center for Responsible Lending. “At the same time, the DFPI’s proposed regulation allows these fintech cash advances to have APRs of 213% or higher. The proposal is too loose to sufficiently rein in abusive fintech lending and permits very expensive loans that closely resemble traditional payday loans. We cannot stand by and allow fintech lenders to ‘innovate’ new ways to exploit low-wage workers.” 

Advocates noted that DFPI is moving in the right direction, including by recognizing that "tips" for loans are essentially interest rates/fees in disguise. They also said that overall rates should be capped, and DFPI's proposal would still allow triple digit rates.

“Earned wage advances and other fintech cash advances are obviously loans, and tips are a disguised form of interest, as DFPI’s data shows. We commend the DFPI for calling out the Emperor’s New Clothes and requiring fintech cash advances to comply with lending laws and rate caps,” said Lauren Saunders, associate director of the National Consumer Law Center. “DFPI’s proposal is strong but needs to be strengthened. Far from killing the fintech cash advances, as some have claimed, DFPI has done too much to accommodate the industry by allowing high fees on extremely short-term loans with APRs of 213% or more.”  

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN

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