vola777 What to Know About Online Paycheck Advances and Why They Face Scrutiny

A growing number of Americans who need cash before their next payday are tapping online paycheck advances. But the fees that often come with the advances are drawing scrutiny from a federal consumer watchdog.

The Consumer Financial Protection Bureau proposed a rule in July that would treat many digital pay-advance offerings as loans. If the rule is finalized, the companies that provide the advances will have to disclose their charges as interest rates so that workers can understand the cost of borrowing and possibly shop around for better terms.

The rule “will help workers know what they are getting with these products,” the bureau’s director, Rohit Chopra, said in prepared remarks.

Employers have an incentive to delay paying workers to reduce their costs, so most are now paid every two weeks or once a month. But that cycle doesn’t always match when bills are due, particularly for lower-income workers who face unexpected expenses.

Digital pay-advance tools let workers receive part of their wages early, then repay the funds on their next payday. Workers can obtain online paycheck advances, or “earned wage” access, through companies that team up with their employers, like Payactiv, or directly from an array of finance apps like Dave and EarnIn.

Some services may offer the advances free of charge, the consumer bureau said in a report accompanying its proposed rule. But often, the advances are free only if the worker agrees to wait a few days for the money. If workers want the funds right away — which they typically do — they must pay a fee for “instant” access.

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