Companies that offer paycheck advance products known as earned-wage access like to make the argument that the money they offer customers is not a loan and as a result that restrictions on interest rates don’t apply. But that’s not an argument that’s widely accepted.
"To me, it's kind of common sense,” says Jay Speer at the Virginia Poverty Law Center. “Somebody gives you money and you have to repay it back later, that's a loan."
He says these money advances are essentially payday loans, and that all the rules and limitations that apply to payday loans should apply here as well. This month, the Consumer Financial Protection Bureau essentially agreed and announced a new interpretive rule saying that yes, these are in fact loans -- despite what the industry says.
Yasmin Farahi is deputy director of state policy at the Center for Responsible Lending. "In Virginia, we hope this really gives pause to legislators who might have otherwise been considering the industry line that these are not loans and make them realize that the experts in this area, the preeminent authority, has said that this is a credit product. They are loans and should be treated as such."
The director of the Consumer Financial Protection Bureau says the new interpretive rule will prevent what he calls "race-to-the-bottom business practices.”
This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.
