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New rule proposed by the CFPB would help consumers understand true cost of paycheck advance products

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The new rule would require financial disclosures whenever consumers use a cash advance product. (iStock )

Paycheck advance products, often referred to as “earned wage” products, give consumers access to their paycheck early when they’re in a pinch. Offered through employers or as direct-to-consumer loans, these products can be free but many come with costly fees. To combat misunderstandings around these loans, the Consumer Financial Protection Bureau (CFPB) has proposed a rule.

The rule explains that paycheck advance products should be subject to the Truth in Lending Act just like other credit products. Under the act, lenders must legally disclose the true cost of any fees workers will face when using these products.

Paycheck advance products are so commonly used that the CFPB felt the need to step in. Employer-sponsored advances often carry an APR over 100%, and the CFPB found that workers typically take out 27 of these loans per year, leading to a costly borrowing system. The average transaction amount for these loans is about $106.

“In recent years, workers have seen big increases in wages, but junk fees and high rates on financial products not only chip away at these gains – they take advantage of workers,” Acting Secretary of Labor Julie Su said.

“As part of the most pro-worker, pro-union administration in history, here at the Department of Labor, we proudly support efforts by the CFPB to guard against predatory lending in the workplace,” said Su.

Consumers looking for alternatives to costly paycheck advance products may want to consider low interest personal loans instead. With Credible, you can compare personal loan rates from multiple lenders without affecting your credit score.

80% OF AMERICANS ARE DEALING WITH A COST OF LIVING CREEP

Borrowers will receive financial disclosures through new rule

The CFPB’s proposed rule intends to make clear that paycheck advance products trigger obligations outlined in the Truth in Lending Act. Some of the fees charged, particularly those for expedited delivery, fall under the act’s definition of finance charges. If certain paycheck advance products are truly no-fee products, they’re immune from the obligations outlined under the Truth in Lending Act.

Lenders who do charge fees will be required to provide workers with in-depth disclosures of the fees and finance charges associated with using their products. These disclosures help consumers better understand what they’ll realistically pay when using these products.

Disclosures keep lenders accountable by limiting high price hikes and increasing competition, helping consumers get the best deals. This system also rewards lenders that offer competitive pricing.

“Paycheck advance products are often marketed to and designed for employers, rather than employees,” said CFPB Director Rohit Chopra. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”

If you’re considering shopping for a personal loan, Credible can do the heavy lifting for you. With the click of a button, you can view multiple lenders, rates and terms in one spot.

LEASING A CAR MORE POPULAR, HIGH-CREDIT CONSUMERS CHOOSING TO LEASE MORE THAN 30% OF THE TIME

BNPL continues to grow in popularity

Many lending products are growing in popularity, particularly since inflation has driven everyday costs up. Buy now, pay later (BNPL) options are especially popular. Nearly 85% of merchants say BNPL was used more often during online checkout within the last 12 months, a PYMNTS study found.

Although consumers appear to love BNPL options, they’re not always a favorite among merchants, according to the study. Only one in four merchants prefer customers to use BNPL options offered, but 38% said that they wish customers would use installment plans like credit cards for large purchases. 

Consumers and merchants simply don’t see eye to eye, however. Younger generations in particular prefer BNPL options. In a separate report by PYMNTS, about half of Gen Zers and Millennials surveyed said they had used a BNPL option at least once in the last year.

About 23% of those Gen Z and Millennials also said their BNPL usage has increased in the last 12 months. Consumers in these generations aren’t likely to give up their reliance on BNPL, especially since 79% of users explained that they were very satisfied with their BNPL experiences.

A strong alternative to BNPL options is a personal loan, especially if you’re making a big purchase. Credible can help you find reputable personal loan lenders that provide timely funding.

BUY NOW, PAY LATER PRODUCTS TO BE TREATED LIKE CREDIT CARDS, CFPB SAYS

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Morgan Stanley picks China stocks to ride out a worst-case scenario in U.S. tensions

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Elon Musk endorses Trump’s transition co-chair Howard Lutnick for Treasury secretary

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Elon Musk at the tenth Breakthrough Prize ceremony held at the Academy Museum of Motion Pictures on April 13, 2024 in Los Angeles, California.

The Hollywood Reporter | The Hollywood Reporter | Getty Images

On Saturday, Elon Musk shared who he is endorsing for Treasury secretary on X, a cabinet position President-elect Donald Trump has yet to announce his preference to fill.

Musk wrote that Howard Lutnick, Trump-Vance transition co-chair and CEO and chairman of Cantor Fitzgerald, BGC Group and Newmark Group chairman, will “actually enact change.”

Lutnick and Key Square Group founder and CEO Scott Bessent are reportedly top picks to run the Treasury Department.

Musk, CEO of Tesla and SpaceX, also included his thoughts on Bessent in his post on X.

“My view fwiw is that Bessent is a business-as-usual choice,” he wrote.

“Business-as-usual is driving America bankrupt so we need change one way or another,” he added.

Musk also stated it would be “interesting to hear more people weigh in on this for @realDonaldTrump to consider feedback.”

Howard Lutnick, chairman and chief executive officer of Cantor Fitzgerald LP, left, and Elon Musk, chief executive officer of Tesla Inc., during a campaign event with former US President Donald Trump, not pictured, at Madison Square Garden in New York, US, on Sunday, Oct. 27, 2024.

Bloomberg | Bloomberg | Getty Images

In a statement to Politico, Trump transition spokesperson Karoline Leavitt made it clear that the president-elect has not made any decisions regarding the position of Treasury secretary.

“President-elect Trump is making decisions on who will serve in his second administration,” Leavitt said in a statement. “Those decisions will be announced when they are made.”

Both Lutnick and Bessent have close ties to Trump. Lutnick and Trump have known each other for decades, and the CEO has even hosted a fundraiser for the president-elect.

The Wall Street Journal also reported that Lutnick has already been helping Trump review candidates for cabinet positions in his administration.

On the other hand, Bessent was a key economic advisor to the president-elect during his 2024 campaign. Bessent also received an endorsement from Republican Senator Lindsey Graham of South Carolina, according to Semafor.

“He’s from South Carolina, I know him well, he’s highly qualified,” Graham said.

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Protecting your portfolio against risks tied to Trump’s tariff plan

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Biggest Risks After the Rally: Trade & Top Valuations

Money manager John Davi is positioning for challenges tied to President-elect Donald Trump’s tariff agenda.

Davi said he worries the new administration’s policies could be “very inflationary,” so he thinks it is important to choose investments carefully.

“Small-cap industrials make more sense than large-cap industrials,” the Astoria Portfolio Advisors CEO told CNBC’s “ETF Edge” this week.

Davi, who is also the firm’s chief investment officer, expects the red sweep will help push a pro-growth, pro-domestic policy agenda forward that will benefit small caps.

It appears Wall Street agrees so far. Since the presidential election, the Russell 2000 index, which tracks small-cap stocks, is up around 4% as of Friday’s close.

Davi, whose firm has $1.9 billion in assets under management, also likes staying domestic despite the tariff risks.

“We’re overweight the U.S. I think that’s the right playbook in the next few years until the midterms,” added Davi. “We have two years of where he [Trump] can control a lot of the narrative.”

But Davi plans to stay away from fixed income due to challenges tied to the growing budget deficit.

“Be careful if you own bonds for sure,” said Davi.

Since the election, the benchmark 10-year Treasury yield is up 3% as of Friday’s close.

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