Washington, D.C – On Friday, the California Department of Financial Institutions (CA DFPI) proposed regulations to subject earned wage advances, fintech payday loans, and income share agreements to the California Financing Law. This proposed regulation would treat the charges associated with these products, including tips, subscription fees, and transaction based fees, to the California Financing Law and interest rate caps.

“Regardless of new technology, terms, appearance, earned wage advances, income share agreements, fintech payday loans, and other fintech consumer credit products are loans, and should be regulated as such at the state and federal level,” said Rachel Gittleman, Financial Services Outreach Manager with Consumer Federation of America. “We applaud the California DFPI for taking this important step to ensure that new consumer credit products are subject to existing laws and regulations, especially that all charges, whether allegedly voluntary or not, are subject to interest rate caps. CA DFPI confirmed that the majority of consumers who use “tip” based applications pay the allegedly voluntary “tip,” and that those tips equate to APRs in the range of 328% to 348%. The APRs for advances that did not accept tips were similarly in the triple digits. These proposed regulations will not only ensure that consumers are protected when using these products, but it will create a more even playing field with clear expectations for transparency, accountability, and oversight.”

See CFA Testimony before U.S. Senate Committee on Banking, Housing, and Urban Affairs more information on fintech consumer credit products.