Massachusetts’ and 13 other states’ attorneys general support a proposed federal rule that would treat new-fangled paycheck advance products as consumer loans — a move that would add additional oversight to protect consumers.

“Without adequate consumer protections, paycheck advance products have the ability to harm vulnerable consumers often struggling to pay time-sensitive expenses, exacerbating their financial costs instead of alleviating them,” Attorney General Andrea Campbell said in an announcement Wednesday that described the targeted paycheck advance services as “predatory.”

A letter sent by the attorneys general from Delaware, the District of Columbia, Maine, Maryland, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania and Rhode Island states that “Protecting consumers from abuse at the hands of lenders in stronger bargaining positions has long been a priority of our States.

“Usurious (Earned Wage Advance, or EWA) products, though presenting themselves as novel financial products, present a risk to vulnerable consumers that is all too familiar to the States that have been combatting predatory lending products for decades,” the letter continues.

The letter seeks to bolster the Consumer Financial Protection Bureau’s director’s own support, amending the agency’s “Truth in Lending” rule to reflect the services commonly offered to people seeking an advance on their paycheck.

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

According to an agency analysis of 2021-2022 data from eight employer-sponsored paycheck advance companies, which together make up a little less than 50% of such products, found that workers take out an average of 27 such loans per year and more than 90% of employees had paid at least one fee to receive their wages early.

The fees for these advances range from $1 to $5.99, according to the CFPB report, whereas those using consumer products — as in not employer-sponsored — are subject to monthly subscription fees which go up to $14.99 and are subject to additional fees called “tips.”

“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,” said acting Labor Secretary Julie Su in a July statement.

The CFPB said the demand for such services comes from a mismatch between the biweekly “compensation for the work they perform and when they incur expenses.”

And it all adds up, because the CFPB found the average APR on these micro-loans is nearly 110%.

Another study of the EWA industry by the California Department of Financial Protection and Innovation cited in the letter from the attorneys general found examples of APRs greater than 300%

“Because most EWA products permit consumers to take out multiple loans per pay period, these consumers ultimately dedicate an average of 25% of their total paychecks repaying EWA loans at these usurious interest rates,” the AG letter states.

A Herald review of a number of companies offering such services found that most advertised themselves as promoting financial “stability” or “wellness” and promoting instant access to employee earnings without any suggestion that it was a loan.

“EWA providers’ reliance on the argument that their products are necessary to meet consumers’ short-term liquidity needs underscores the propriety of including expedited funds delivery fees in any finance charge calculation,” the AG letter states. “Extra care should be given to ensure that consumers are not confused or misled about the full costs of a product that is advertised as being useful for defraying or avoiding costs, such as overdraft fees.”

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