In our nation’s system of federalism, both federal and state governments play important roles in safeguarding the public’s interest. Consumer protection laws are a critical example of how that system works.
The CFPB carefully monitors developments in state law and regulation relating to consumer financial protection. The California Department of Financial Protection and Innovation (DFPI) recently proposed to undertake registration and examinations of companies that provide what the proposal refers to as “income-based advances.” Earlier this week, the CFPB submitted input on DFPI’s proposal.
The CFPB’s letter notes that income-based advances – products where repayment is related, at least in theory, to a worker’s next payday – have long been part of the U.S. consumer lending market. The letter explains that states have long provided critical oversight of companies that provide consumer financial products or services, like those typically offering income-based advances. This oversight is crucially important for ensuring that companies are meeting their legal obligations. The CFPB indicates that, by treating income-based advance products as loans and including a variety of charges that accompany the advance as “charges,” DFPI’s proposal takes a similar approach to federal law—the Truth in Lending Act and the regulation that implements it.
Given the many developments in this market, the CFPB plans to issue further guidance to provide greater clarity concerning the application of federal law to income-based advance products.