Junk Fees, Banking Regulations, & Earned Wage Access
There's a lot going on!
Advocate Andy is a reader supported publication designed to provide information and insight in the consumer finance space. If you enjoy this publication, please consider a paid subscription (click below for options). No matter what, I hope you’ll share this information with others you think may be interested.
What Happens After SVB?
Not surprisingly, consumer advocates are calling for increased regulatory scrutiny of banks following the collapse of Silicon Valley Bank. Here’s more:
“Rolling back common-sense safeguards to ensure banks were liquid enough to pay their depositors was clearly the wrong decision,” said Renita Marcellin, the advocacy and legislative director at Americans for Financial Reform. “These banks would have faced a tougher risk management framework under the original Dodd-Frank law. But bipartisan majorities in Congress weakened the law in 2018 and Trump-appointed regulators took it even further.”
Americans for Financial Reform made the following recommendations in the wake of the bank collapses:
"Congress should repeal the 2018 legislation and take up additional measures to protect financial stability and the public interest. But regulators should not wait; they can take steps now to make the system more stable while protecting consumers and investors. They should strengthen bank capital and liquidity rules and make use of the Financial Stability Oversight Council and the Office of Financial Research to identify emerging risks, designate firms as systemically important, and properly regulate both banks and non-banks. They should also implement the Dodd-Frank mandate to limit executive compensation."
On Junk Fees and Rising Rents
Sure, inflation is playing a role in rising housing costs, but one advocacy group is calling out the role of junk fees in the rapid rise of rents.
The National Consumer Law Center (NCLC) has released a report noting that while rents are rising nationally, a significant portion of that increase is due to what the consumer advocacy group calls "junk fees."
“Renters are already struggling to find safe and stable housing during a severe affordable housing shortage,” said April Kuehnhoff, senior attorney at the National Consumer Law Center and co-author of the report. “Now, on top of sky-high rent prices, renters are being forced to pay excessive and sometimes illegal late fees, as well as convenience fees, roommate fees, and even a fee just because it’s January!”
A Warning on Earned Wage Access
Sure, early access to earned wages can be a helpful financial management tool. It can also create a debt trap, as one advocacy group notes:
“Companies that offer loans directly to consumers against their next paycheck are marketing a technology-based form of payday loan, a harmful product that Vermont and other states have appropriately prohibited, with rates capped at 18% annually for single payment loans in Vermont,” said CRL policy counsel Monica Burks.
Burks and CRL noted that these companies are pressing other states - Kansas, Missouri, New York, and Georgia - in order to allow their lending model to continue unabated.
The model typically markets products as "free" to the consumer but also includes a suggested tip that often creates an effective interest rate as high as payday loans.
CRL is suggesting rate caps to prevent what it is suggesting would be a potential debt trap for employee borrowers.