Finance

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.
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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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“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

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).
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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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