The Consumer Financial Protection Bureau is looking at consumer debt incurred at work to pay for needed equipment and training – a trend known as “employer debt.”
In some cases, employees must subscribe to “debt products” which they must repay if they leave “before a certain date”, specifies the CFPB in a press release.
“For example, a company can offer training to a new hire and require the cost of the training to be reimbursed if the employee leaves or is terminated within a specified period,” the CFPB said.
The CFPB said these financial arrangements could pose serious risks to consumers, including “overstretching of household finances, service and collection errors, defaults and inaccurate credit reports.”
It could also make it difficult for an employee to move to another workplace. “The labor market works best when workers can move freely in it,” said CFPB director Rohit Chopra. “Our investigation is investigating the effects of an emerging form of debt that may have the potential to trap employees on the spot.”
The survey comes at a time when employers, often in partnership with fintech companies, are offering different financing products to their employees.
The CFPB is seeking public comment and information on the impact of “employer-driven debt,” particularly from employers, consumers, labor organizations and trade unions.
Kabbage co-founders Kathryn Petralia and Rob Frohwein recently launched Keep Financial, which allows employers to offer cash bonuses in the form of loans to employees. Keep is the lender, which can differentiate its product from those the CFPB has described as under investigation. Another company, Salary Finance, works with employers to offer financing products, including short-term loans, to their employees.
Bolt, an e-commerce software company, has caught the eye for directly offering loans to employees to purchase stock options, program co-founder Ryan Breslow boasted on Twitter. An employee told Business Insider he borrowed tens of thousands of dollars to buy stock, only to lose his job in recent layoffs. These loans are optional, unlike the required equipment or training outlined in the CFPB announcement.