WASHINGTON, D.C. — The Consumer Financial Protection Bureau 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 CFPB said.
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, the Bureau added.
“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.”
According to the CFPB, 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.
The CFPB said 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, the agency added.
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 unique harms related to employer-driven debts.
“In large part, these harms grow out of the fact that employer-driven debts are inextricably linked to a worker’s employment, and that the debt is controlled, not by the employer, but by a separate lending entity,” the CFPB said.
Additional Risks
According to the CFPB, 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 unliterally 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."