FOR IMMEDIATE RELEASE: August 6, 2024
Contact: Andy Morrison, New Economy Project, andy@neweconomynyc.org, 716-308-2265
New York Labor & Community Groups Endorse CFPB Rule To Crack Down on Predatory Paycheck Advance Loans
Groups Call on New York Regulators to Aggressively Enforce State’s Usury Law and Take Action Against Predatory Fintech Companies That Exploit Workers
On Tuesday, prominent labor unions and community organizations from across New York State endorsed the Consumer Financial Protection Bureau’s proposed rule cracking down on predatory paycheck advance loans. Marketed through “Earned Wage Access” (EWA) phone apps, these exploitative loans prey on low-wage workers and extract massive sums from low-income and Black and brown communities.
The groups, including 1199SEIU United Healthcare Workers East, the Retail, Wholesale and Department Store Union (RWDSU), and CWA District 1—which collectively represent approximately 700,000 workers—as well as ALIGN and the more than 50 organizations in the New York State Community Equity Agenda Coalition, have for years sounded the alarm about the proliferation of predatory financial technology (or fintech) companies in New York and across the country. Just one EWA company, EarnIn, disclosed at a recent state legislative hearing that it had over 80,000 users in New York last year. Predatory EWA firms claim to help workers by giving them faster access to their wages, but in reality peddle debt trap loans with interest rates as high as 300% or more.
EWA lenders design and market EWA products in ways that mask their true cost in order to evade New York’s usury law, which caps interest rates on loans at 25% APR. The CFPB’s new rule, however, affirms that EWA advances are loans, and are therefore subject to the federal Truth in Lending Act and state usury laws.
The labor and community groups urged the CFPB to issue a strong final rule that reins in predatory fintech companies that exploit low-wage workers – and to stand strong against industry attempts to evade or undermine the rule. They also called on New York State to advance a living wage, and to aggressively enforce the state’s usury law and take action against EWA companies, in accordance with the CFPB’s rule.
QUOTES:
“Earned Wage Access phone apps are not above the law. These smartphone apps are simply repackaging and rebranding the age-old exploitative payday loan. In fact, their “fees” for accessing loans are typically the equivalent of a 300% or higher interest rate, well above New York’s 25% maximum usury rate,” said Stuart Appelbaum, President of the Retail, Wholesale and Department Store Union. “We are pleased that the U.S. Consumer Financial Protection Bureau has recognized this growing problem and proposed a rule cracking down on these new types of predatory workplace payday loans. The last thing low-income workers in New York and throughout the U.S. need are predatory payday loans that put them into debt traps. Instead, New York should be investing in public banking and community banks, creating a living wage, building more affordable housing, and more.”
“Increasingly, workers across the country are being targeted by big tech companies with predatory payday loan phone apps that promise quick and easy access to wages. In reality, these are debt trap loans with sky-high interest rates,” said Dennis G. Trainor, Vice President for CWA District 1. “We applaud the Consumer Financial Protection Bureau’s strong proposed rule to crack down on Earned Wage Access apps and look forward to a robust final rule to curtail this exploitative practice that’s a growing threat to working families.”
“This is nothing more than usury in a phone app. Caregivers and other New Yorkers work too hard to be swindled out of their paychecks by exorbitant fees and interest rates,” said Tori Newman-Campbell, Legislative Coordinator of 1199SEIU United Healthcare Workers East which represents some 300,000 healthcare workers in New York State and 450,000 across the East Coast. “We urge the Consumer Financial Protection Bureau to quickly clamp down on these exploitative Earned Wage Access phone apps.”
“When prices are high and the minimum wage is not yet a living wage, of course workers want an early paycheck,” said Theodore A. Moore, Executive Director of ALIGN. “But predatory fintech payday lenders are taking advantage, preying on the workers who are struggling to make ends meet and then sticking them with hidden fees and interest. The CFPB’s proposed rules would expose these lenders for what they are and protect workers from exploitative practices that leave them farther behind.”
“As a worker and a full-time student, I applaud the CFPB for working to rein in payday lending,” says Matthew Ahrens, a student at NYC College of Technology and a NYPIRG Board Member. “I was recently forced to take out an EWA payday loan which required a $10 fee for a $100 advance – the equivalent of 260% APR. The CFPB’s proposed rules would hold predatory lenders accountable and protect workers from exploitative practices.”
“Earned Wage Access is payday lending by another name. The CFPB’s proposed rule will protect workers from predatory loans disguised as wage advances,” said Andy Morrison, Associate Director of New Economy Project, which coordinates the New York State Community Equity Agenda. “We urge the CFPB to pass a rigorous final rule cracking down on predatory fintech payday lending. Additionally, we call on state legislators to oppose industry efforts to evade state usury laws and instead support transformative initiatives – such as public banking and community development financial institutions – that build community wealth and address root causes of banking inequality.”
“In recent years, predatory lenders have exploited a wide range of loopholes in New York’s financial laws to market loans with hidden finance charges and excessive, sky-high interest rates,” said Chuck Bell, Advocacy Programs Director for Consumer Reports. “The CFPB’s rule clarifying that ‘Earned Wage Access’ is a loan, and that fees and ‘tips’ count as interest, will help New York and other states prevent these increasingly devious evasions by digital apps.”
“So often, we see New Yorkers with low- and moderate-incomes subjected to financial exploitation in the form of loans that include hidden fees and penalties that deceptively drive up their true cost,” said Carolyn Coffey, Director of Litigation for Economic Justice at Mobilization for Justice. “Workplace payday loans like ‘Earned Wage Access’ target low-wage workers, including many people who live in historically redlined communities of color, and trap them in cycles of debt. The CFPB’s proposed interpretive rule is an important step toward achieving economic and racial justice in New York.”
“We strongly support the CFPB’s proposed rule because it aligns with our commitment to ensuring financial fairness and protection for New York’s communities,” said Pamela Sah, Chief Program Officer at the Center for NYC Neighborhoods. “This interpretive rule will put the brakes on extractive predatory lending practices while still maintaining accessibility to sound loans and other financial products that foster community economic development and intergenerational wealth-building.”
“Long Island Housing Services, Inc. urges the CFPB to pass a strong rule on workplace payday lending,” said Ian Wilder, Executive Director of Long Island Housing Services, Inc. “It is expensive enough to be poor in this country without being trapped monthly in high interest, short-term loans. Once we rein in this abuse of those with the least resources, we must move forward to better serve these communities by funding our mission-driven Community Development Financial Institutions, which have a long record of serving redlined communities. Furthermore, we need to finally institute public banks in New York to provide the infrastructure to serve this need in the long-term.”
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