The Center for Responsible Lending’s recent report “Not Free: The Large Hidden Costs of Small-Dollar Loans Made Through Cash Advance Apps” portrays earned wage access providers as payday lenders while practically ignoring half the industry.
The report acknowledges that there are two models for earned wage access – the direct-to-consumer model and the employer-based model. The report “includes five direct-to-consumer companies in the analysis,” but “[e]mployer-integrated companies were visible in the transactions data but were not reflected in the analysis because repayment was done through payroll.” From this admittedly limited analysis, they conclude that “the frequent use of advance products combined with their high cost make earned wage advance harmful for consumers.” They say their data shows users of direct-to-consumer EWA products saw a 56% increase in overdrafts on their checking accounts. But only looking at the direct-to-consumer model misses how much EWA helps consumers, especially those facing income volatility. In gathering information from its EWA members, which focus on the employer-based model, the Innovative Payments Association has collated research that shows that on average 63% of EWA users say that it allows them to reduce their use of payday loans, and 55% say they overdraft their bank accounts less often. But don’t take our word for it. The Financial Health Network has done research on EWA products as well. A quote from one participant in its focus groups probably does the best job of summing up the possibilities of earned wage access: “I have tried payday loans, having a credit card, car title loans, gotten loans on my jewelry at a pawn shop. All of these charge fees at an insane interest rate and the fees are almost as much as the money borrowed if you have to pay over time. And it’s a temporary fix. Getting advanced wages I have earned through my employer is actually the safer alternative.” Vulnerable consumers face risks from incomplete analysis. They may lose an important liquidity tool if the legislation and regulation called for in the report treats all EWA products the same. Consumers may also suffer if they get the impression that all earned wage access products are bad and choose to avoid those that could help them weather income volatility without needing expensive credit. In any analysis it is important to carefully define what is being investigated. While every report wants to grab readers’ attention, it is worth being a little pedantic to avoid creating collateral damage. Guest post by Emily Rueth, Managing Director & Founder of Vicuse Payments Advisors
For card issuers, embracing and implementing even the most basic use cases for artificial intelligence (AI) can revolutionize your operations and enhance customer experiences. Here are several starting points for consideration: 𝐂𝐮𝐬𝐭𝐨𝐦𝐞𝐫 𝐒𝐞𝐫𝐯𝐢𝐜𝐞 𝐄𝐧𝐡𝐚𝐧𝐜𝐞𝐦𝐞𝐧𝐭
𝐅𝐫𝐚𝐮𝐝 𝐃𝐞𝐭𝐞𝐜𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐏𝐫𝐞𝐯𝐞𝐧𝐭𝐢𝐨𝐧
𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐌𝐚𝐫𝐤𝐞𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬
𝐄𝐟𝐟𝐢𝐜𝐢𝐞𝐧𝐭 𝐑𝐢𝐬𝐤 𝐌𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭
𝐒𝐭𝐫𝐞𝐚𝐦𝐥𝐢𝐧𝐞𝐝 𝐃𝐢𝐬𝐩𝐮𝐭𝐞 𝐇𝐚𝐧𝐝𝐥𝐢𝐧𝐠
About Emily Rueth Emily Rueth is the Managing Director and Founder of Vicuse Payments Advisors. She has over two decades of experience working in issuing banks and now serves as a consultant and advisor to leading financial institutions and fintech firms. She focuses on developing card payment strategies and tactical plans that help issuers optimize revenue, mitigate risk, and enhance customer loyalty in an ever-changing payments landscape. Innovation has been the driving force behind the tremendous strides our country has made toward financial inclusion and the democratization of the consumer financial product marketplace. Product innovation, however, is a process that requires some experimentation and market feedback. After all, developing new products to serve Americans who have been left behind is not an exact science. Critique and feedback from all stakeholders, including the perspective of regulators, is a necessary part of the process.
I am not here to criticize the seemingly more aggressive approach the Consumer Financial Protection Bureau (CFPB) has taken during the last year, nor will I use this opportunity to question the substance of the myriad proposals the CFPB has released during the past six months. Nonetheless, taken together, these proposals would suggest that the CFPB views its mission as purely to oppose the development of financial products that could be helpful to many working Americans as they struggle to manage their financial health. Moreover, by appearing to restrict innovation and thus discouraging new financial product development, ultimately harms consumers because, often, it reduces the number and types of viable options available to them, especially low-to-moderate-income consumers who may need access to money in emergency situations. CFPB Director Rohit Chopra has been true to his word. He has made it clear through his words and his actions that he believes that his predecessors did not use all the agency’s authorities to regulate the financial services marketplace with the goal of protecting consumers. During the past twelve months, Director Chopra has taken affirmative steps to expand the agency’s authority to regulate non-bank companies with assets over $10 billion dollars, and has released proposals to regulate open banking, overdraft, and credit cards. The CFPB has also indicated that it is likely to act on earned wage access (EWA) and “buy now pay later” practice in the near future. As President and Chief Executive Officer of the Innovative Payments Association (IPA), I can state explicitly that our members are not opposed to regulation. In fact, we share the CFPB’s goal of protecting consumers and we regularly engage directly with regulators at the state and federal level to ensure that policymakers have all the facts before making decisions that may impact how consumers protect their financial futures. Many Americans take for granted that we can access savings or credit when an unexpected financial situation arises, but millions of us do not enjoy that same access to liquidity when hit with an unexpected emergency. Where can these people go when they cannot access credit, tap into their earned wages, or use new technologies that allow them to buy food or gas when they need it? The CFPB does not offer a solution for people who are caught in these kinds of situations. At one point in its history, the CFPB inspired financial innovation, which was encouraged though a “sandbox” for the private sector to experiment with new products designed to help improve personal financial stability. Lately, however, the CFPB does not seem as interested in exploring new technologies to help consumers. This was made clear in 2022 when the CFPB rescinded its policy supporting the sandbox. The CFPB’s message to consumers is crystal clear: if you find yourself in the unfortunate situation where $100 might put the emergency you are encountering to rest and, payday is a week or more away, the CFPB is unwilling or unable to offer solutions. We have all heard the old saying, “people should pull themselves up by their bootstraps.” But what happens if you don’t have any boots? [The CFPB appears to agree with this sentiment, even where the consumer in question doesn’t have any boots.] Last summer, the bureau issued a statement appearing to discourage consumers from the use of payment apps and suggesting that consumers withdraw funds from those accounts because they lacked FDIC protection. The headline-grabbing statement seemed inconsistent with the statement’s content. Those reading past the headline, or reading the CFPB mandated disclosures they received in connection with their payment app account, or doing their own research would know that many of these same products were actually insured by the FDIC’s via pass through insurance, or its state-level equivalent(s). By the way, these are the same payment apps that millions of Americans relied on to manage their money and share money with loved ones during the worst pandemic in our lifetimes. Regulators who are supposed to oversee the payments marketplace, and specifically Americans encountering financial emergencies, should not only articulate what companies should not do, they have a responsibility to articulate which products can be helpful. Moreover, they should follow former CFPB Director Cordray’s lead and clearly identify products or technologies they believe could be beneficial to consumers. For instance, in 2017, Director Cordray called on fintech companies to develop EWA products as an alternative to payday loans. The payments community responded and millions of Americans benefited. This constructive example should be replicated so that regulators and the private sector can work towards our mutually shared goals of protecting consumers and encouraging responsible innovation. As artificial intelligence worms its way into more aspects of our lives, laws and regulations governing its use will become necessary.
We can’t uninvent technology, so the only thing that protects us from the worst aspects of it are the agreements that we make as a society – namely laws and regulations. What will those laws look like? Bills in states like Tennessee, Hawaii, and Florida seek to address focused problems like the use of AI in political campaigns and deep fakes. Other states, such as Illinois, are looking at AI more generally, and these may provide some clues for what is to come in the future. Bills in the Maryland House and Senate offer a starting point for thinking through how artificial intelligence might be evaluated regardless of the purpose of any particular AI tool. The bills would require that State agencies not use AI for anything that could be considered “high-risk,” which is defined as programs or services that could lead to unlawful discrimination, a disparate impact against a group of people based on some characteristic, or “have a negative impact on the health, safety, or well-being of an individual.” That last clause could cover a lot of territory. It could easily be taken to mean that Maryland cannot use AI for making medical decisions or using AI databases for law enforcement, for example. While we might agree that AI should not be used for some purposes, there are others where AI might be both useful and acceptable. For example, this bill could cover using AI to identify unemployment or tax fraud which can be difficult for humans to identify just because of the sheer volume of data. Could it be interpreted broadly enough that the state could never operate self-driving snowplows? On top those provisions, Maryland agencies would also need to evaluate any current AI tools in use, conduct regular reviews of AI in government, and notify any people or groups of people who may have been hurt by decisions made by AI tools. This is a recognition that AI is already a part of our lives and is being used to make decisions that affect us. As it begins to advance, it makes to evaluate how it has performed so far and start repairing any damage done. It’s not hard to imagine that bills like Maryland’s at the state level will eventually lead to a national discussion around what parameters should be set on AI. The industry should stay abreast of these conversations and think proactively about what boundaries they have out in place around their own use of new technologies. The “Dark Web” is where people think most illegal e-commerce transactions happen, but sometimes they are hiding in plain sight on the world wide web.
In the latest episode of the IPA Payments Pod, Sarah Craven, the product manager for transaction laundering detection products at G2 Risk Solutions, discusses how companies mask e-commerce transactions. Sometimes they are selling illegal goods, and other times they are selling content or goods that pose a reputational risk for the acquiring bank. We discuss how bad actors use various ruses to disguise what they are really selling, how transaction laundering threats have evolved, and why it pays to trust your gut. This podcast was recorded on January 18, 2024. Things may have changed by the time you hear it. You can find the podcast here, or wherever you get your podcast. Please remember to like it, leave us a review, and share it with your colleagues to help others find the show. When a paycheck arrives can be just as important as its size. A mismatch between the timing of paychecks and bills can have huge affect on household finances.
In the latest episode of the IPA Payments Pod, Matt Pierce, the founder and CEO of Immediate, an earned wage access provider discusses what led him to found Immediate, how earned wage access contributes to financial health, and how EWA stacks up against payday loans. This podcast was recorded on January 11, 2024. Things may have changed by the time you hear it. The new year is off to a fast start built on the momentum of the regulatory proposals of 2023.
In the latest episode of the IPA Payments Pod, the IPA’s CEO Brian Tate, and its COO, Ben Jackson, discuss the current state of regulation and what is coming in 2024. They talk about how payments companies should plan in light of the regulatory proposals from 2023 that are still active. They cover on-going court cases that could shape the industry. They also discuss how the election might affect the regulators’ plans for the rest of the year. This podcast was recorded on January 11, 2024. Things may have changed by the time you hear it. On October 31, the Consumer Financial Protection Bureau published its proposed rule on open banking. The proposed rule would require banks, credit unions, and other financial services companies to share account and transaction data with consumers and authorized third parties. It also would require that data providers create developer interfaces, which make it easier for third parties to access data. Providers are worried about liability for breaches, and the possibility that some companies could become credit bureaus under provisions of the rule. Comments were due by December 29, 2023.
The IPA has filed a comment letter on behalf of its members in response to the rulemaking. This blog is separate from that letter and sums up some of my personal thoughts about the proposal and open banking in general. A copy of the comment letter is online. This proposal comes into a market where individuals already use multiple financial services. As Ron Shevlin, the Chief Research Officer at Cornerstone Advisors, noted in a Forbes Column that six out 10 consumers who opened a checking account in 2022 and 2023 say they have more than one checking account. So, it is not as though open banking regulations will give people more choices. If people believe it is hard to move accounts because they have direct deposits or automatic bill payments established, that reflects their inertia (and maybe the difficulty of dealing with their employers). Alternatively, some people could simply be happy with the account products they currently have. But the CFPB sees it differently. In a press release in October, Director Rohit Chopra said the goal of the rule was to “to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.” That overlooks the main point: There is nothing preventing that now. The press release goes on to say that the proposed rule will protect consumers from “junk fees” by making” personal financial data available, at no charge to consumers or their agents, through dedicated digital interfaces that are safe, secure, and reliable.” Most people would agree that customers should have access to their data, but the CFPB seems to believe that every fee is a “junk” fee. They also seem to think that safe, secure, reliable digital interfaces are free to build and maintain, and that customer service agents, bank tellers, and account managers work for free. There is a question of sustainability and access for consumers when no consideration is given to keeping the lights on. If we want financial products to exist, then someone must provide and maintain them. Another fundamental question is whether a business should be required to provide its customers’ information to a competitor, even at the customer’s request. If customers want to give their data to another company, then it is their right do so, but why why should a company be compelled to provide a portal into its systems for competitors to steal their business. In any case, it certainly seems reasonable to let a bank or other provider charge their competitor for the service – just like they would charge any other business for a service provided. It is important to protect consumers, and regulation is an important part of that. But protecting consumers also means ensuring companies can create and provide access to necessary products and services. Sustainability needs to become a core principle of regulation. Oherwise regulators risk forcing consumers into a situation where they have nothing but bad choices for financial products. The beginning of the new year brings new strategies for companies and resolutions for individuals designed to make them more successful.
But success is not always just a result of what a company or an individual does. Sometimes, there are larger forces at work. In the latest episode of the IPA Payments Podcast, the IPA’s CEO Brian Tate, and its COO, Ben Jackon, discuss Malcolm Gladwell’s Outliers, which examines these larger forces. The book explores how being successful can depend on context, and how success is not always just a matter of hard work or having the best idea or strategy. We look at what the factors for success are and what lessons the book has for business innovation. This podcast was recorded on December 11, 2023. Things may have changed by the time you hear it. You can find the podcast here, or wherever you get your podcasts. Please be sure to subscribe, leave us a review, and share it with colleagues who may be interested. Innovation is often associated with speed, but good work takes time.
Systems and Methods Inc., or SMI as they are known, is taking the long view when it comes to developing its business strategy. One core piece of that strategy is helping low- and moderate-income people build wealth, which is not an overnight process. In the latest episode of the IPA Payments Podcast, Bo Stone, the chief strategy officer of SMI, and Wesley Stone, SMI’s director of government affairs discuss the company’s decade to decade approach to growth and how its products are evolving to open up new opportunities for SMI and its customers. This Podcast was recorded on December 12, 2023. Things may have changed by the time you hear it. You can find the Podcast here, or wherever you get your podcasts. Please be sure to subscribe, leave us a review, and share it with colleagues who may be interested. |
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