WASHINGTON– Nearly 200 labor, consumer, and civil rights organizations are warning Congress that at the same time families are struggling under record affordability pressures, the reintroduction of legislation that is modeled on last year’s H.R. 7428 “would open the door for payday loan apps to take even more from the already stretched-thin paychecks of military servicemembers and other workers.”
No credit union organization is a signatory on the letter.
“At a moment when groceries, rent, and other necessities cost more than ever, the coalition stressed that Congress must not allow predatory lenders to disguise loans with sky-high interest rates as harmless ‘earned wage access’ products,” said the Center for Responsible Lending in a statement. If similar to last year’s bill, the legislation would falsely declare that these loans ‘are not credit’ and therefore not subject to the Truth in Lending Act (TILA), which would gut basic cost transparency and protections.”
What’s Harmful
According to the groups, among the harmful aspects of the proposed legislation is that it would:
- Hide the true cost of borrowing by removing requirements to disclose loans’ Annual Percentage Rate (APR), a “crucial standardized measurement of price”
- Exempt payday loan app companies from needing to comply with the Military Lending Act’s consumer protections for servicemembers, including a strong cost cap and ban on forced arbitration
- Encourage a business model where workers must pay to be paid
- Fuel state-level efforts to dismantle safeguards against predatory payday loans.
“A bill like last Congress’s H.R. 7428 would hand payday loan apps a free pass to trap servicemembers in debt,” Nadine Chabrier, senior litigation and policy counsel at the Center for Responsible Lending, said in a statement. “This type of legislation would prevent all consumers from making an apples-to-apples comparison of the cost of payday loan apps with other forms of credit.”
Mounting Evidence
The coalition alleged in their letter that there is mounting evidence of harm from payday loan apps, including:
- DailyPay pushed users into smaller, more frequent loans to rack up fees, averaging over $300 in revenue per worker each year. One worker took out 450 loans in under two years, paying nearly $1,400 in fees.
- MoneyLion advertised “0% APR,” yet nearly “nine out of 10 advances carried fees, averaging over 800% APR once fees and tips were included. Lenders capped loan sizes so users were forced to take multiple loans — nearly two million loans were taken within minutes of the previous one.”
Additional Allegations
The letter further alleges the legislation, if similar to H.R. 7428, would “not stop all of the ‘multiple strategies that lenders use to make tips almost as certain as required fees.’”
The letter also cites research from CRL that found multiplying fees associated with payday loan apps, including that overdraft fees increased 56% on average after people began using an app, and that users who had not been overdrafting previously started to overdraft 2.3 times on average over the three months after their first app-based payday loan.
