CFPB official says pay advance products may be loans

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REUTERS/Andrew Kelly

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  • Consumer groups said Trump-era guidance was misused
  • General counsel says agency should clarify stance

(Reuters) - A U.S. Consumer Financial Protection Bureau official signaled the agency is rethinking its Trump-era guidance on pay advance companies, saying that some of their products may be loans.

Acting General Counsel Seth Frotman said in a letter to consumer advocates on Tuesday that the legal opinion exempting some earned wage access (EWA) products from a lending regulation has created "significant confusion." The products let employees cash out wages they have earned ahead of payday.

Some EWA companies work with consumers directly, others offer their services via employers including Walmart and PayPal. The companies describe themselves as a sustainable alternative to high-interest payday loans and bank overdrafts.

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The CFPB said in 2020 that products offered for free through an employer should not be regulated as consumer credit under the Truth in Lending Act. Consumer advocates have called for the opinion to be rescinded, arguing that regulating the products as credit will protect consumers.

In his letter Tuesday, Frotman said that the products may be credit under other state and federal laws. EWA products that charge fees or ask for voluntary "tips" may also be loans under TILA, he wrote.

Frotman said he would ask CFPB Director Rohit Chopra to clarify the agency's stance.

The letter came in response to New Jersey consumer advocates who said the CFPB opinion was being used to used to argue in favor of exempting EWA from state interest rate caps.

Read more: Consumer advocates urge CFPB to rein in pay advance companies

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Jody Godoy reports on banking and securities law. Reach her at