WASHINGTON –A new report from the National Consumer Law Center (NCLC) says the exploitation of borrowers continues via payday loans, this time as part of what it called its “latest face,” so-called “earned wage access” products.
According to the NCLC, the report, Picking Workers’ Pockets: Unfair, Deceptive and Abusive Practices by Earned Wage Payday Lenders, explores the tactics that earned wage payday lenders use to “collect disproportionately high fees and trap consumers in a cycle of borrowing – just as traditional payday lenders do.”
While most of the debate around this new form of payday loan app has centered on whether the products are loans—“they are,” the NCLC said, “unfair, deceptive and abusive practices are unlawful no matter what kind of label they carry.”
‘Those Who Can Least Afford Them’
“Earned wage payday loans exploit low-income workers and are designed to extract high fees from those who can least afford them,” Patrick Crotty, senior attorney at the National Consumer Law Center, said in a statement. “The earned wage payday loan industry is rife with unfair, deceptive and abusive practices. Enforcement authorities should address those practices, and legislators should reject exemptions from interest rate caps and other consumer protection laws.”
According to the NCLC, recent public enforcement actions by state attorneys general, the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and the City of Baltimore cited practices of earned wage payday lenders that are allegedly in violation of laws against unfair, deceptive or abusive acts or practices (UDAP). The Deceptive Practices
According to the NCLC, these practices include:
- Disclosing 0% APR, “no interest” or “interest free” for costly loans when up to 90% of users pay fees that frequently add up to $300 or more a year and as much as $1400 over two years
- Promoting “instant” or “fast loans” while hiding high “expedite” fees that far exceed the cost of instant delivery and that almost all borrowers pay
- Dark patterns that are unfair or abusive tricks to coerce purportedly voluntary “tips” and “donations,” including adding “tips” automatically with complicated, obscure and time-consuming interfaces to remove them, repeat requests for “tips,” and implied threats of consequences for borrowers who do not tip.
Enforcement Urged
The report urges state enforcement authorities, regulators, and consumer advocates to be on the lookout for violations of state and federal UDAP laws in earned wage payday loans and other cash advance apps even if these products are not described as loans.
“Workers shouldn’t have to pay to be paid. Earned wage payday loans drain consumers of $300 a year or more of their hard-earned money through interest, fees, and ‘tips,’” Lauren Saunders, associate director and director of federal advocacy at the National Consumer Law Center, said in a statement. “Unfair practices proliferate because these payday loans are intentionally designed to evade the legal definitions of ‘loans’ and ‘interest’ to dodge interest rate caps and other lending and disclosure laws.”
