“Our view has always been that both products are loans. Someone lends you money and you pay it back later, ”said Rachel Gittleman, financial services outreach manager for the Consumer Federation of America, a consumer protection group.
However, proponents of new financial products say that too many regulations could stifle innovation.
“Whatever product you’re talking about, these are new products,” says Tate. “These are not the same concept products that people may be familiar with.”
Paycheck advances may not have the attention of regulators right now, but they could be in the years to come, he says.
The Consumer Financial Protection Bureau issued an opinion in 2020 that some advances offered by an employer are not considered credit under the Truth in Lending Act, which regulates most types of consumer credit. Shortly after Rohit Chopra was confirmed as CFPB’s new director earlier this year, consumer groups sent a letter asking him to withdraw the statement.
Here’s how to approach these funding options
A lack of regulation and a flood of new products mean the consumer must research, compare and plan before using a new financial product.