The Consumer Finance Protection Bureau is looking into consumer debt incurred at work to pay for required gear and training — a trend known as “employer-driven debt.”
In some cases, employees must sign up for “debt products” they have to pay back if they leave “before a certain date,” the CFPB said in a statement.
“For example, a company may provide training to a new hire, and require that the training’s cost be paid back if the employee leaves or is fired within a set period,” the CFPB said.
The CFPB said these financial arrangements could lead to serious consumer risks, including “overextension of household finances, errors in servicing and collection, default, and inaccurate credit reporting.”
It could also make it difficult for an employee to move to another workplace. “The labor market operates at its best when workers are able to move freely within it,” CFPB director Rohit Chopra said. “Our inquiry is about studying the effects of an emerging form of debt that may have the potential to trap employees in place.”
The inquiry comes at a time when employers, often in partnership with fintech companies, are offering different financing products to their employees.
The CFPB is soliciting comments and information from the public on the impact of “employer-driven debt,” particularly from employers, consumers, worker organizations and labor unions.
Kabbage co-founders Kathryn Petralia and Rob Frohwein recently launched Keep Financial, which enables employers to offer cash bonuses in the form of loans to employees. Keep is the lender, which may differentiate its product from those the CFPB described as the subject of its inquiry. Another company, Salary Finance, works with employers to offer financing products, including short-term loans, to their employees.
Bolt, an ecommerce software company, has drawn attention for directly offering employees loans to buy stock options, a program co-founder Ryan Breslow has touted on Twitter. One employee told Business Insider he borrowed tens of thousands of dollars to buy shares, only to lose his job in recent layoffs. Such loans are optional, unlike the required gear or training described in the CFPB’s announcement.
