By Beverly Brown Ruggia
We have one last chance in the lame session of our legislature to stop a bill that would give New Jersey’s most vulnerable workers a nasty surprise.
S3611 / A3450 allow New Jersey residents quick access to their earned wages. It’s another form of disguised payday loan, structured to enrich payday advance companies while potentially trapping low-income workers in a debt-destroying cycle.
S3611 / A3450 sets no fee limits, allowing businesses to bypass New Jersey loan laws, or usury caps, designed to protect our residents from outrageous interest rates. For example, a $ 100 advance taken five days before payday with a $ 5 fee works out to an annual rate of 365%, well above the 30% annual rate allowed in New Jersey.
An industry player recognize this fact and calls this product a loan, provides them mostly for free through employers and caps all fees based on the Military Loan Law Standard for RPA. New Jersey should do nothing less: call these products loans and regulate them as such.
Many workers continue to struggle for the moment another variant of COVID is emerging, and inflation drives up the cost of living more and more. But workers who pay for early access to earned wages put themselves in financial jeopardy just as much as if they took out a payday loan.
Payday advance companies don’t do anything for free. These companies enter into contracts with employers or directly with workers to advance wages before the normal payday. Advances are reimbursed by deduction from wages or by direct debit from an individual’s bank account or by payment by credit card.
Payroll companies pocket a fee for the advance, and these fees are actually interest payments on short-term, high APR loans that workers have taken out for their earned wages.
The repayment terms pose their own set of problems. Advances paid off with credit cards will almost always lead to credit card debt for working poor people. Refunds by direct withdrawal to low-cash bank accounts often result in expensive overdraft fees. Both scenarios will generally encourage borrowing more from future wages earned. Just like that, the debt cycle begins.
All of these conditions can force low-income workers to accept back-to-back advances, trapping them in an endless and destructive debt trap. National Consumer Law Center (NCLC) estimates that users average between 12 and 120 advances per year, and many withdraw even more than that.
Workers without access to cash could benefit from a variety of solutions. There is technology that allows companies to pay workers earlier, for free, and there are rainy day programs and savings plans. The simplest solution would be to pay workers better wages so that they do not fall into ruinous debt.
What New Jersey cannot afford is to sneak a law in the depths of a lame duck session that claims to help workers but is a disguised form of payday loan.
Lobbyists have presented this bill as an innovative solution for cash-strapped employees. But S3611 / A3450 would only benefit fintech and payday loan companies that seek to enrich themselves at the expense of workers and their families.
It should come as no surprise that there has been little fanfare about this bill, as the interests of the companies it serves are working to get it under the radar.
We hope New Jersey lawmakers will remember that they were elected to protect all of our workers, especially our most vulnerable, from disguised predatory lenders who would like to see this legislation passed. We urge our lawmakers to vote against payday lenders and to vote ‘No’ on S3611 / A3450.
Beverly Brown Ruggia is the Financial Justice Program Director for New Jersey Citizen Action, a statewide advocacy and empowerment organization that advances social, racial and economic justice for all, while meeting needs. of low- and moderate-income New Jerseyans through education and service.
Our journalism needs your support. Please register today at NJ.com.
here is how to submit an editorial or letter to the editor. Bookmark NJ.com/Opinion. Follow us on twitter @NJ_Opinion and on Facebook at Opinion NJ.com. Get the latest updates straight to your inbox. Subscribe to NJ.com newsletters.