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    CFPB cracks down on popular paycheck advance programs. Here’s what that means for workers

    The Consumer Financial Protection Bureau proposed a rule that would label paycheck advance programs as loans, if users are charged a fee.
    These programs are sometimes known as earned wage access, daily pay, instant pay, accrued wage access, same-day pay and on-demand pay.
    Under the proposed rule, users would see fees expressed as an APR, like credit-card interest rates.

    Rohit Chopra, director of the Consumer Financial Protection Bureau, during a House Financial Services Committee hearing on June 13, 2024.
    Tierney L. Cross/Bloomberg via Getty Images

    The Consumer Financial Protection Bureau is cracking down on so-called paycheck advance programs, which have grown popular with workers in recent years.
    Such programs, also known as earned wage access, allow workers to tap their paychecks before payday, often for a fee, according to the CFPB.

    The CFPB proposed an interpretive rule on Thursday saying the programs — both those offered via employers and directly to users via fintech apps — are “consumer loans” subject to the Truth in Lending Act.
    More than 7 million workers accessed about $22 billion in wages before payday in 2022, according to a CFPB analysis of employer-sponsored programs also published Thursday. The number of transactions jumped more than 90% from 2021 to 2022, the agency said.
    Such services aren’t new: Fintech companies debuted them in their earliest form more than 15 years ago. But their use has accelerated recently amid household financial burdens imposed by the Covid-19 pandemic and high inflation, experts said.

    Is it a loan or ‘utilizing an ATM’?

    If finalized as written, the rule would require companies offering paycheck advances to make additional disclosures to users, helping borrowers make more informed decisions, the CFPB said.
    Perhaps most important, costs or fees incurred by consumers to access their paychecks early would need to be expressed as an annual percentage rate, or APR, akin to credit card interest rates, according to legal experts.

    The typical earned-wage-access user pays fees that amount to a 109.5% APR, despite the service often being marketed as a “free or low-cost solution,” according to the CFPB.
    The California Department of Financial Protection and Innovation found such fees to be higher — more than 330% — for the average user, according to an analysis published in 2023.

    Such data has led some consumer advocates to equate earned wage access to high-interest credit like payday loans. By comparison, the average credit card user with a balance paid a 23% APR as of May, a historic high, according to Federal Reserve data.
    “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices,” CFPB Director Rohit Chopra said in a written statement.
    More from Personal Finance:Biden may deliver sweeping student loan forgiveness weeks before electionMedical debt carries less weight on credit reportsHarvard fellow: CFPB’s ‘buy now, pay later’ regulation isn’t enough
    However, the financial industry, which doesn’t consider such services to be a traditional loan, had been fighting such a label.
    It’s inaccurate to call the service a “loan” or an “advance” since it grants workers access to money they’ve already earned, said Phil Goldfeder, CEO of the American Fintech Council, a trade group representing earned-wage-access providers.
    “I would resemble it closer to utilizing an ATM machine and getting charged a fee,” Goldfeder said. “You can’t utilize a methodology like APR to determine the appropriate costs for a product like this.”
    The CFPB is soliciting comments from the public until Aug. 30. It may revise its proposal based on that feedback.  

    Part of broader ‘junk fee’ crackdown

    The proposal is the latest salvo in an array of CFPB actions aimed at lenders, like one seeking to rein in banks’ overdraft fees and popular buy now, pay later programs.
    It’s also part of a broader Biden administration push to crack down on “junk fees.”
    Consumers may encounter earned wage access under various names, like daily pay, instant pay, accrued wage access, same-day pay and on-demand pay.
    Business-to-business models offered through an employer use payroll and time-sheet records to track users’ accrued earnings. When payday arrives, the employee receives the portion of pay that hasn’t been tapped early.
    Third-party apps are similar but instead issue funds based on estimated or historical earnings and then automatically debit a user’s bank account on payday, experts said.

    Branch, DailyPay, Payactiv, Dave, EarnIn and Brigit are examples of some of the largest providers in the B2B or third-party ecosystems.
    Providers may offer various services for free, and some employers offer programs to employees free of charge.
    The CFPB proposal’s requirements don’t apply in cases when the consumer doesn’t incur a fee, it said.
    However, most users do pay fees, CFPB found in its analysis of employer-sponsored programs.
    More than 90% of workers paid at least one fee in 2022 in instances when employers don’t cover the costs, the agency said. The vast majority were for “expedited” transfers of the funds; such fees range from $1 to $5.99, with an average fee of $3.18, the CFPB said.
    Many are repeat users: Workers made 27 transactions a year and paid $106 in total fees, on average, said CFPB, which cautioned that consumers may “become financially overextended if they simultaneously use multiple earned wage products.”

    CFPB rule wouldn’t prohibit fees

    The CFPB’s proposal marks the first time the agency has said “explicitly” that early paycheck access amounts to a loan, said Mitria Spotser, vice president and federal policy director at the Center for Responsible Lending, a consumer advocacy group.
    “It is a traditional loan: It’s borrowing money at a cost from the provider,” she said.
    Goldfeder, of the American Fintech Council, disagrees.
    “Unlike the provision of credit or a loan, EWA is non-recourse and does not require a credit check, underwriting, base fees on creditworthiness; charge a fee in installments, charge interest, late fees, or penalties; or impact a user’s credit score,” he said in a written statement.

    The CFPB rule doesn’t prohibit providers from charging fees, Spotser said.
    “It merely requires them to disclose it,” she added. “You have to ask yourself, why is the industry so afraid to disclose that they’re charging these fees?”
    If finalized, the rule would allow the CFPB to bring enforcement actions against companies that don’t make the appropriate disclosures, for example, said Lauren Saunders, associate director of the National Consumer Law Center. States could also sue in court, as could consumers or via arbitration, she said.
    Companies “ignore it at their peril, because it’s the CFPB’s interpretation of what the law is,” Saunders said of the interpretive rule. “They could try to argue to a court that the CFPB is wrong, but they’re on notice.”

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    Retail crime ‘queenpin’ faces five years in prison, millions in restitution

    The leader of a nationwide retail crime operation faces five years and four months in state prison and must pay millions in restitution.
    A CNBC investigation in March detailed Michelle Mack’s operation and showed how law enforcement traces stolen items from organized retail rings.
    Mack oversaw a multi-million-dollar operation in which thieves stole from Ulta Beauty and other major retailers, with many of the items ending up for sale on Amazon, according to an investigation by the California Highway Patrol.

    Michelle Mack is taken into custody, Dec. 6, 2023.

    The ringleader of a nationwide organized retail crime operation that targeted Ulta Beauty and other major retailers is facing more than five years in a California state prison.
    Michelle Mack, of Bonsall, California, received a delayed sentence of five years and four months, which be officially set in January. It was handed down by a San Diego County Superior Court judge on Thursday,

    Her husband, Kenneth, received the same sentence and is already incarcerated. As part of his plea deal, he will be released after one year and then put on probation and community service for the remainder of his sentence.
    The judge allowed Mack to serve her sentence after her husband is released so she can care for their children. She was ordered not to leave the state or go near any Ulta or Sephora stores.
    The couple also must pay $3 million in restitution to Ulta and Sephora, according to the sentencing document.

    Michelle Mack ran her operation from her 4,500-square foot mansion in Bonsall, which is outside San Diego, where authorities say she oversaw a network of about a dozen people who stole millions of dollars in merchandise from Ulta, Sephora and other major retailers.
    The Macks had pleaded guilty last month to conspiracy to commit a felony and organized retail theft, petty theft, and receiving stolen property.

    Attorneys for the Macks declined to comment, according to NBC 7 San Diego.
    A CNBC investigation in March detailed Mack’s operation and showed how law enforcement traces stolen items from organized retail rings.
    Investigators began referring to the theft group as the “California Girls” and considered Mack the crew’s ringleader. She made millions reselling the stolen items on Amazon via the “Online Makeup Store” to unwitting customers at a fraction of their typical retail price, investigators said, before she and her husband were arrested in December.
    Since 2012, Mack had sold nearly $8 million in cosmetics through the storefront before it was shut down, and she brought in $1.89 million in 2022 alone, Amazon sales records provided to investigators show.
    The site was shut down after the December arrests.
    Earlier this year, Ulta Beauty CEO Dave Kimbell told CNBC in an extended interview about organized retail crime that the “financial impact is real, but way more important is the human impact, the impact it has to our associates, the impact it has to our guests.”
    The Macks and seven members of the crew were originally charged with 140 felonies. One of the defendants has received a three year and four month sentence, while cases against the others are pending, according to court records.
    — CNBC’s Paige Tortorelli, Gabrielle Fonrouge and Courtney Reagan contributed to this story. More

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    In the face of trade tensions, China says it will focus on its own economy

    “As long as we do our own things well, we can ensure the national economy can run smoothly and steadily move forward,” Han Wenxiu, deputy director at the Chinese Communist Party’s central committee office for financial and economic affairs said.
    The press conference followed the end of a high-level meeting policy called the Third Plenum that ended Thursday.

    Real estate building under construction in Qingjiangpu District, Huai ‘an City, Jiangsu province, China, on July 15, 2024.
    Cfoto | Future Publishing | Getty Images

    BEIJING — Top Chinese officials on Friday emphasized the country would focus on its own affairs in the face of rising trade tensions.
    “As long as we do our own things well, we can ensure the national economy can run smoothly and steadily move forward,” Han Wenxiu, deputy director at the Chinese Communist Party’s central committee office for financial and economic affairs, told reporters in Mandarin, translated by CNBC.

    He listed three areas of focus: the stable and healthy development of the real estate market, accelerated development of “emerging and future industries” and expanding domestic demand, “especially consumption.”
    Han was responding to a question about how China would support growth in the face of increased trade tensions. He used a phrase attributed to Chinese President Xi Jinping, who in recent years has called for the country to “do your own thing well” and focus on its own affairs.
    The press conference followed the end of a high-level meeting policy called the Third Plenum that ended Thursday. While the final resolution has yet to be released — and is expected in the coming days — the initial communique called for boosting domestic tech and achieving the full-year economic targets.

    External uncertainties have increased, but they will not impact China’s commitment to and confidence in continued deepening of reform and further opening up.

    deputy director, CCP’s central committee office for “Comprehensively Deepening Reform”

    “External uncertainties have increased, but they will not impact China’s commitment to and confidence in continued deepening of reform and further opening up,” Mu Hong, deputy director of the Party’s central committee office for “Comprehensively Deepening Reform,” told reporters Friday.
    China has used “reform and opening up” to describe policies of the last 40 years that gradually opened the economy to foreign and private capital, among other changes to the communist state.
    After decades of rapid economic growth, China’s expansion has slowed. GDP growth missed expectations in the second quarter, prompting some analysts to call for more stimulus if the country is to reach its full-year target of around 5% growth.

    Real estate’s ‘systemic impact’

    While exports have held up as a growth driver, a real estate slump and lackluster consumption have weighed on the economy. Beijing’s longer-term efforts to build up advanced technology have yet to fully offset the drag from those sectors.
    Han, who is also director of the Office of the Central Rural Work Leading Group, on Friday acknowledged the “systemic impact” of real estate on China’s economy. He said China would continue to work on absorbing existing housing inventory while “optimizing” new construction, and delivering pre-sold homes.
    Investment in real estate dropped by 10.1% in the first half of the year, with residential sales down by well over 20% from a year ago.
    Han in a separate response on Friday said the economy faced some challenges, and called for “stronger, more effective macro policy.” He did not specify a timeframe.
    When giving an introductory outline of the plenum’s resolution, Han said it included plans to improve the macroeconomic governance system and further integrate the development of urban and rural areas.
    “We must ensure that [the resolution] is implemented and effective,” he said at the end of those opening remarks.
    — CNBC’s Sonia Heng contributed to this report. More

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    Netflix beats estimates as ad-supported memberships rise 34%

    Netflix said its advertising-supported memberships grew 34% during the second quarter compared to the year-earlier period.
    The streamer’s global paid memberships rose 16.5% year over year to 278 million. This marks one of the last updates Netflix will release regarding its membership numbers.

    The Netflix logo is displayed above its corporate offices on January 24, 2024 in Los Angeles, California. 
    Mario Tama | Getty Images

    Netflix reported second-quarter earnings Thursday that showcased the media giant’s position at the head of the streaming race as it added more global subscribers and saw strong growth in its advertising business.
    The streamer said its ad-supported memberships grew 34% during the period compared to the same quarter last year.

    Advertising has become an increasingly important business model for media companies to boost — or in some cases, achieve — profitability for streaming. Netflix’s stock has been boosted in recent quarters by its push to gain subscribers on its cheaper, ad-supported tier, in addition to its crackdown on password sharing.
    Here’s how the company performed for the period ended June 30, compared with Wall Street expectations:

    Earnings per share: $4.88 vs $4.74 per share expected by LSEG
    Revenue: $9.56 billion vs.9.53 billion expected by LSEG
    Total memberships: 277.65 million global paid memberships vs. 274.4 million expected, according to StreetAccount

    Revenue was roughly $9.6 billion, up 17% compared to the year-earlier period, driven primarily by the increase in average paid memberships.
    Netflix said it now expects full-year reported revenue growth of 14% to 15%, compared with previous guidance of 13% to 15%.
    The company reported net income of $2.15 billion, or $4.88 per share, up from $1.49 billion, or $3.29 per share, during the second quarter of 2023.

    Netflix’s global paid memberships rose 16.5% year over year to 278 million. This marks one of the last updates Netflix will release regarding its membership numbers.
    Last quarter, the company warned investors it would stop providing quarterly membership numbers or average revenue per user beginning in 2025, noting the company is “focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction.”

    Stock chart icon

    Netflix’s stock has been uplifted by its crackdown on password sharing and the addition of a cheaper, ad-supported tier.

    Netflix began focusing on different business strategies to drive revenue growth after the streamer saw subscriber growth slow in 2022. In May, Netflix said it would launch its own ad platform and no longer partner with Microsoft for that technology. The company also has begun adding live sports, such as NFL games on Christmas Day over the next three years, a move that will likely attract more ad dollars for the streamer.
    “We’re in live [TV] because our members love it, and it drives a ton of engagement and a ton of excitement … and the good thing is advertisers like it for the exact same reason,” said Netflix co-CEO Ted Sarandos on Thursday’s earnings call.
    Netflix had been dipping its toe into live content even before its deal with the NFL, with Sarandos noting the company’s focus on “buzzy, exclusive live entertainment.”
    Still, original shows like “Bridgerton” and “Baby Reindeer” continue to drive engagement for the streamer.

    Luke Newton and Nicola Coughlan attend the special screening of “Bridgerton” Season 3 – Part Two at Odeon Luxe Leicester Square on June 12, 2024 in London, England. 
    John Phillips | Getty Images

    The company said Thursday its cheaper, ad-supported tier has been gaining traction among its base, with these subscribers accounting for more than 45% of signups in the markets where the option is offered.
    However, Netflix noted on Thursday that the ad-supported business is still young, and it doesn’t expect ad revenue to be a “primary driver of our revenue growth in 2024 or 2025.”
    “The near term challenge (and medium term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory,” the company said in its earnings release, meaning the streamer isn’t able to meet advertiser demand yet.
    Netflix co-CEO Greg Peters said on the earnings call Thursday that Netflix has so far been focused on scaling its ad-supported subscriber base. With the company on track to achieve its subscriber goals for 2025, Netflix is now shifting its focus to monetizing its ad inventory, he said.
    As the company beefs up its advertising operation, it’s giving “advertisers more effective ways to buy … a big point of feedback we heard from advertisers,” Peters said Thursday.
    On this note, Netflix added it believes it’s on track to “achieve critical ad subscriber scale for our advertisers” next year, allowing it to further increase its ad-tier memberships in 2026 and beyond.

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    With corners of the media industry in upheaval, Netflix makes clear it’s staying out of the fray

    Netflix added more than 8 million subscribers in the second quarter and now has more than 277 million global customers.
    The company emphasized it’s content to take market share from the traditional world of TV that’s not YouTube.
    Netflix’s focus on the status quo comes while smaller competitors Paramount Global and Warner Bros. Discovery grapple with major change.

    A couple sits in front of a television with the Netflix logo on it.
    Picture Alliance | Picture Alliance | Getty Images

    Netflix’s second-quarter earnings report contained no bombshells, and that’s just fine for the company and its investors.
    In recent weeks, Paramount Global has agreed to merge with Skydance Media. Warner Bros. Discovery is considering all options for its future and may lose broadcast rights to the NBA.

    While the media and entertainment landscape around Netflix is in a state of change, the world’s largest streamer is fine with the status quo.
    “If we execute well — better stories, easier discovery and more fandom — while also establishing ourselves in newer areas like live, games and advertising, we believe that we have a lot more room to grow,” Netflix said in its quarterly shareholder letter. “Because when we delight people with our entertainment, Netflix can drive higher engagement, revenue and profit than the competition. This in turn creates a more loved and valued entertainment company — for our members, creators and shareholders — that we can strengthen and grow over time.”
    Netflix classified the streaming, pay TV, film, gaming and branded advertising market as a $600 billion industry in terms of total annual sales, noting the company accounts for about 6% of that revenue.
    The streamer added more than 8 million subscribers in the quarter. It now has more than 277 million global customers, making it by far the largest subscription streaming service in the world. Netflix’s market valuation as of Thursday’s market close is $277 billion.
    Nielsen statistics show Netflix as the second most-watched streaming service in the U.S., trailing only YouTube. But rather than worry about YouTube’s competition, Netflix is content to focus on the other 80% of the TV market, the company reiterated.

    “Looking to the future, we believe our biggest opportunity is winning a larger share of the 80%+ of TV time (primarily linear and streaming) that neither Netflix nor YouTube has today,” the company said.
    While Warner and Disney announced a new cross-company bundle in May that will give consumers the ability to buy Max with Disney’s suite of streaming services for a discount, Netflix made a point to say it feels no need to engage with the competition.
    “We haven’t bundled Netflix solely with other streamers like Disney+ or Max because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience,” Netflix said. “This has driven industry leading penetration, engagement and retention for us, which limits the benefit to Netflix of bundling directly with other.”
    Netflix’s focus remains building its advertising business and adding streaming subscribers on the back of its strength of content.
    It’s not the most dramatic of narratives. It may not make for a great Netflix series.
    But as an investment, shareholders will happily take it.
    WATCH: Netflix has major beat on Q2 subscribers More

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    NBA sends media terms to Warner Bros. Discovery, officially starting five-day match period

    Warner Bros. Discovery received paperwork from the NBA on Wednesday night, starting a five-day window where it can use its matching rights on a package of NBA games.
    Warner Bros. Discovery intends to match Amazon’s package of games, which costs $1.8 billion per year.
    It’s unclear if the NBA can reject Warner Bros. Discovery’s matching rights, and the league has prepared for a potential lawsuit in recent months.

    Jaylen Brown, #7 of the Boston Celtics, shoots a three-point basket against the Dallas Mavericks during Game 5 of the 2024 NBA Finals at TD Garden in Boston on June 17, 2024.
    Nathaniel S. Butler | National Basketball Association | Getty Images

    With National Basketball Association media rights approaching final form, Warner Bros. Discovery is about to make its play.
    The league has sent official terms of its proposed new media rights contacts to Warner Bros. Discovery, starting a five-day period where the media company can choose to match a package of broadcasting rights.

    A TNT spokesperson confirmed the receipt of the documents and acknowledged the company is currently reviewing the terms. Warner Bros. Discovery received the contract framework on Wednesday night, according to people familiar with the matter, who asked not to be named because the details are private.
    The media rights deal, as currently constructed, includes deals with Disney, Comcast’s NBCUniversal and Amazon for three different packages of games, totaling $76 billion over 11 years, beginning with the 2025-26 season. It also includes WNBA games, which is worth $2.2 billion of the total sum.
    Warner Bros. Discovery intends to match a package of games that has been slotted for Amazon, as CNBC first reported in May, which includes both playoff games and the the in-season tournament, according to the people familiar. Amazon signed a deal with the NBA to pay $1.8 billion per year for its package, they said.

    Next steps unclear

    When Warner Bros. Discovery formally announces its intention to match, it’s unclear what will happen next. The NBA may or may not have the right to reject Warner Bros. Discovery’s matching rights, and the league has been working with its lawyers for months in preparation of a potential lawsuit, according to people familiar with the matter.
    Warner Bros. Discovery’s Turner Sports has been a broadcast partner of the NBA for almost 40 years. The company plans to argue that its matching rights — a holdover from its current media rights deal — applies to Amazon’s package of games, even though that package has been earmarked for a streaming-only service. Along with its cable network TNT, Warner Bros. Discovery owns Max, a competitor to Amazon’s Prime Video.

    Still, Max has fewer subscribers than Prime Video, at about 100 million versus Prime’s more than 200 million monthly global subscribers. The streaming rights that are part of the Amazon package are global in nature, one of the people said.
    TNT is also the home to “Inside the NBA,” the popular NBA studio show featuring Ernie Johnson, Charles Barkley, Kenny Smith and Shaquille O’Neal. Barkley has already said he plans to retire from the show after next season no matter the outcome of the media rights deal.

    “I don’t have a sense of that,” said NBA Commissioner Adam Silver earlier this week at a press conference when asked what may or may not happen with regard to Warner Bros. Discovery or the NBA’s own network, NBA TV, which is operated by TNT Sports. “We’ll see.”
    Losing the NBA would be a blow for Warner Bros. Discovery, which could lose about $600 million in profit from advertising and a potential decrease in cable affiliate fees if it loses the NBA, Wolfe Research media and entertainment analyst Peter Supino told MarketWatch earlier this week.
    Warner Bros. Discovery shares have fallen 23% this year.
    “I apologize that this has been a prolonged process, because I know they’re committed to their jobs,” Silver said last month of Warner Bros. Discovery employees who work on NBA programming. “I know people who work in this industry, it’s a large part of their identity and their family’s identity, and no one likes this uncertainty. I think it’s on the league office to bring these negotiations to a head and conclude them as quickly as we can.”
    Disclosure: Comcast’s NBCUniversal is the parent company of CNBC. More

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    Penn lays off about 100 employees as it focuses on ESPN Bet growth

    Penn Entertainment will lay off about 100 employees as it focuses on growth for ESPN Bet. The company employs about 20,000 people.
    CEO Jay Snowden told staff members in an internal email that it’s embarking on a new phase of growth in its interactive business, which includes ESPN Bet, a $2 billion branding partnership with Disney’s ESPN.
    Investors are impatient for Penn to demonstrate its muscle with the rebranded sportsbook, and activist investor Donerail Group has called on the board to sell the casino company.

    The ESPN Bet app on a smartphone arranged in New York, US, on Thursday, Feb. 22, 2024. 
    Gabby Jones | Bloomberg | Getty Images

    Penn Entertainment will lay off about 100 employees as it focuses on growth for ESPN Bet.
    CEO Jay Snowden told staff members in an internal email that the changes will enhance operational efficiencies following its 2021 acquisition of Canadian media and gaming powerhouse theScore.

    The company employs about 20,000 people.
    “When PENN acquired theScore, we hit the ground running with the build-out of our proprietary tech stack and the migration of our sportsbook to theScore’s best-in-class-platform,” Snowden wrote in the memo, which was seen by CNBC. “This led us to temporarily set aside any potential organizational changes that would typically follow a major acquisition.”
    Penn went on to say it’s embarking on a new phase of growth in its interactive business, which includes ESPN Bet, a $2 billion branding partnership with Disney’s ESPN. Snowden said the initiatives include product enhancements and deeper integration into ESPN’s ecosystem.
    Investors are impatient for Penn to demonstrate its muscle with the rebranded sportsbook, and activist investor Donerail Group has called on the board to sell the casino company.
    Rumors have swirled about the potential interest from many other online gaming and brick-and-mortar casino companies.

    Truist gaming analyst Barry Jonas wrote in a note Thursday that a sale is unlikely in the near term because of the complexity of a transaction that would likely involve major divestitures.
    Penn’s release of new ESPN Bet features this fall during football season should meaningfully improve its product, Jonas said, and a focus on costs indicate the company’s commitment to seeing its investment yield results.
    Penn shares have plummeted 25% year to date. It has missed earnings expectations the last two quarters and lowered guidance.
    “Investors continue to wonder what an ESPN Bet success could look like, and how much more investment (beyond what’s guided) it’ll take to reach,” Jonas notes.
    Truist has a buy rating on Penn and a price target of $25.

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    ‘Loophole’ may get you a $7,500 tax credit for leasing an EV, auto analysts say

    The Inflation Reduction Act has a few provisions related to tax credits for electric vehicles.
    Consumers can get a $7,500 tax credit for buying a new EV. It may be challenging for cars and/or buyers to qualify due to certain requirements.
    It may be easier to get a $7,500 credit by leasing an EV. Leases aren’t subject to the same rules.
    Automakers may pass along the tax credit by lowering monthly payments.

    Maskot | Maskot | Getty Images

    Buying a new electric vehicle isn’t the only way consumers can access a $7,500 federal EV tax credit. They may also be able to get the money by leasing a car.
    The Inflation Reduction Act, which President Joe Biden signed in 2022, contained various rules related to consumer tax breaks for EVs.

    Perhaps the best known of them — the “new clean vehicle” tax credit — is a $7,500 tax break for consumers who buy a new EV. Most qualifying buyers opt to get those funds directly from the car dealer at time of purchase.  
    But many auto dealers are also passing along a $7,500 tax break to lessees, via a different (and, experts say, lesser-known) mechanism called the “qualified commercial clean vehicles” tax credit.

    The upshot for consumers: It’s far easier to get than the credit for buyers of new EVs, since it doesn’t carry requirements tied to car manufacturing, sticker price or buyers’ income, for example, experts said.
    In other words, the $7,500 may be available for lessees but not for buyers.
    This EV tax credit “leasing loophole” has likely been a key driver of increased leasing uptake in 2024, Barclays auto analysts said in an equity research note published in June.

    About 35% of new EVs were leased in the first quarter of 2024, up from 12% in 2023, according to Experian.
    “Want a good deal on buying a car today? Your best bet may be leasing an EV,” Barclays said.

    What is the EV leasing loophole?

    Praetorianphoto | E+ | Getty Images

    Receipt of the full new clean vehicle credit — Section 30D of the tax code — is conditioned on certain requirements for vehicles and buyers.
    For example, final assembly of the EV must occur in North America. Battery components and minerals also carry various sourcing and manufacturing rules. Cars must not exceed a certain sticker price: $55,000 for sedans and $80,000 for SUVs, for example.
    As a result, not all EVs qualify for a tax credit. Some are eligible, but only for half ($3,750).
    More from Personal Finance:Are gas-powered or electric vehicles a better deal?States rolling out consumer rebates tied to energy efficiencyRent a car for a road trip, or drive your own?
    Thirteen manufacturers make models currently eligible for a tax break, according to the U.S. Energy Department. That list is expected to grow over time as automakers shift production to comply with the new rules.
    To qualify for the tax break, buyers’ annual income also can’t exceed certain thresholds: $300,000 for married couples filing a joint tax return or $150,000 for single filers, for example.
    But consumers can sidestep these requirements by leasing.

    That’s because leasing is qualified as a commercial sale under the Inflation Reduction Act, according to Barclays. With a lease, the carmaker technically sells the vehicle to a leasing partner, which is the one transacting with consumers.
    The U.S. Treasury Department issues the tax credit — offered via Section 45W of the tax code — to the leasing partner, which may then pass on the savings to lessees.

    Dealers aren’t obligated to pass on savings

    The catch is, they don’t have to pass on savings to drivers, experts said.
    It seems “a ton” are doing so at the moment, though, said Ingrid Malmgren, senior policy director at Plug In America.
    The $7,500 tax credit enables dealers to charge low monthly payments for leases, thereby helping “stoke demand” for EVs, Barclays wrote. In 2024, dealers have leaned more heavily on such leasing promotions, in the form of subsidized monthly payments, analysts said.  
    Foreign automakers that struggle to meet the Inflation Reduction Act’s domestic manufacturing requirements are among those doing so.

    “Greater EV ambitions from Asian [car manufacturers] such as Toyota and Hyundai Kia also heavily utilize the leasing loophole as their production outside of North America limits their ability to qualify for the consumer credit, but not the commercial credit,” Barclays wrote.
    Brian Moody, executive editor of Autotrader, a car shopping site, expects the majority, if not all dealers, to pass along tax break savings to remain competitive.
    “It’s unlikely you’d go lease one and not get the advantage,” Moody said.

    EV leasing considerations for consumers

    Consumers may consider doing the rough math on leasing versus buying before making an ultimate choice, including tallying potential tax breaks, interest costs, total car payments and resale value, experts said.
    While leases are generally (though not always) more expensive than buying, leasing carries nonfinancial benefits, too, Malmgren said.
    For example, leasing ensures car users always have a new vehicle, and also offers “a great glide path” for consumers to determine whether EVs are right for them, without much risk, she said.
    Buyers waiting for “next-generation EVs” from certain carmakers around 2026 to 2028 can “maintain flexibility,” while also providing a benefit to those “wary of technological obsolescence given the rapid pace of EV/software-defined vehicle development,” Barclays wrote.

    That said, it may be more complicated for consumers to untangle how dealers are passing along a tax credit to EV lessees relative to buyers, experts said.
    “I think leases are a little bit of a shell game,” Malmgren said. “There are many variables that factor into your payment” that dealers can tweak in a lease contract.
    She encourages consumers to get a printout of everything included in the lease to make sure the $7,500 tax credit is reflected in the pricing.
    “Quite frankly, I’d just ask upfront,” Moody said. “And it should be spelled out in the [lease] documents, too.”
    If it’s not easy to understand, consumers should consider moving on to another dealer, he added.

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