The Consumer Financial Protection Bureau (CFPB) has published a report highlighting the risks employer-driven debt poses to workers. After a review of responses to the CFPB’s public inquiry, the analysis describes the growing prevalence of employer-driven debt and challenges workers and consumers face when they become indebted to an employer or an employer’s affiliate as a condition of employment. The issue spotlight delves into the use of training repayment agreement provisions (TRAPs), which can impede worker mobility, particularly when it comes to obtaining higher wages.
“Employer-driven debt poses the risk of suppressing wages and forcing workers to stay in jobs they do not want,” said CFPB Director Rohit Chopra. “When it comes to consumer lending, federal law protects Americans even when they are on duty at work.”
Employer-driven debt can cover an array of products and practices, including a worker’s up-front purchase of equipment and supplies that the employer requires. TRAPs are a common form of employer-driven debt. Companies use TRAP provisions to require workers to agree to pay back the purported costs of training if they leave their jobs before the end of a contractual commitment period. In some instances, workers may have to agree to debt products where the debt must be repaid if the worker leaves the employer before a certain date.
In June 2022, the CFPB launched a formal inquiry to seek more information about employer-driven debt. The responses to the inquiry highlighted numerous ways workers experience harm related to employer-driven debts. In large part, these harms grow out of the fact that employer-driven debts are linked to a worker’s employment, and that the debt is controlled, not by the employer, but by a separate lending entity. Additional risks identified in the report include:
- Workers are rushed through the loan sign-up process: Workers report that employers may coerce employees to incur debts as a precondition of employment. Some employers even use high-pressure tactics, such as leaving workers with the impression that the job opportunity would not be available if they took time to carefully review and consider loan and contract terms.
- Employers use bait-and-switch fine print: When commencing employment, employees are required to sign paperwork that appear to allow the employer or issuer to unilaterally change the terms and conditions of the financial product without worker consent or awareness.
- Employer-driven debt puts up barriers to career advancement and higher wages: Despite it often sold to workers as a way to increase earnings and career mobility, employer-driven debt may be structured in ways that require employees to make large payments upon separation. This can impede labor mobility and dissuade employers from raising wages to retain employees. TRAPs, and other forms of employer-driven debt, can have effects similar to non-compete agreements.
The CFPB has a range of responsibilities related to consumer financial protection in the workplace. For example, the CFPB administers key provisions of the Fair Credit Reporting Act (FCRA) related to employment background screening. The CFPB also ensures workers receive disclosures and other protections when employers remit their wages onto prepaid payroll cards.
Across the federal government, agencies are pursuing initiatives to ensure workers are able to be matched with employers offering higher wages. For example, the Federal Trade Commission (FTC) has proposed a rule to restrict noncompete agreements and clauses, which it estimated are costing workers nearly $300 billion per year.