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  • California AG warns against unlawful employer-driven debt arrangements

    State Issues

    On July 25, California Attorney General Rob Bonta issued a Legal Alert to remind all employers of state-law restrictions on employer-driven debt. Bonta highlighted concerns about employers engaging in exploitative practices that lead to employees accumulating debts as a result of their employment. (Also covered by InfoBytes here). Such practices may include employers withholding wages, failing to reimburse necessary expenses, or charging fees that are unlawful under California labor laws.

    The alert outlines that employer-driven debt arrangements may violate California Labor Code section 2802, “which mandates that employers ‘indemnify employees for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.’” Regarding job training, the alert mentions that California law forbids employers from making workers repay training costs, except in two cases: (i) when the training is necessary for legally practicing the profession, and (ii) when the worker voluntarily undertakes the training, not due to employer mandate. The alert warns companies that engage in exploitative practices that the protections established in the Labor Code cannot be waived by contract. The alert also states that such practices risk violating the state’s Rosenthal Fair Debt Collection Practices Act, which “prohibits an employer or its agent from engaging in unfair or deceptive acts or practices when attempting to collect on employer-driven debt.” Finally, the alert notes that if an employer takes advantage of a worker’s lack of information or knowledge about the risks or costs of the debt, they may violate the California Consumer Financial Protection Law.

    State Issues State Attorney General California Consumer Finance Employer-Driven Debt Products

  • CFPB reports on employer-driven debt

    Federal Issues

    On July 20, the CFPB released an Issue Spotlight covering findings from an inquiry into worker experiences with employer-driven debt. In June 2022, the Bureau launched a formal inquiry on practices and financial products that may cause an employee to owe a debt to their employer. (Covered by InfoBytes here.) The inquiry focused on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, including training repayment agreements where employees are required to repay the costs of job training should they voluntarily or involuntarily leave a job within a set time period. The inquiry sought information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts,” and asked consumers whether they felt they “have a meaningful choice” in agreeing to these products, what these agreements’ terms and conditions are, and whether the products might prevent individuals from seeking alternative employment.

    The recent Issue Spotlight found that employer-driven debt presents several risks to consumers, including:

    • Workers experience unique harms related to employer-driven debts, as these debts are tied to their employment, and the issuer of the debt controls their ability to repay it.
    • Employees may be rushed into signing agreements that conceal debt details or employers may change terms and conditions after origination without a worker’s knowledge.
    • Workers’ focus on securing or advancing employment may lead them to overlook valuation, disclosures, and terms of credit or lease products.
    • Employer-driven debts may be imposed as a mandatory precondition of employment, potentially hindering workers’ ability to negotiate terms before accepting a job.
    • Employers may misrepresent the value and nature of employer-driven debt, work conditions, and potential job earnings, leading workers to expect career mobility and higher earnings.
    • Workers may suffer negative impacts on household financial stability, such as lower earnings, damaged credit scores, and additional debts, to meet repayment-related obligations.

    The Bureau stated that it is committed to working with other federal, state, and local regulators to address potential workplace consumer harms and said it intends to evaluate the use of training repayment agreement provisions or other employer-driven debts for potential violations of consumer financial laws.

    Federal Issues CFPB Consumer Finance Employer-Driven Debt Products

  • CFPB and NLRB to share info on employer-driven debt practices and illegal surveillance

    Federal Issues

    On March 7, the CFPB and the National Labor Relations Board (NLRB) entered into an information sharing agreement to create a formal partnership for addressing unlawful practices involving employer surveillance and employer driven debt. The agencies stressed in the joint announcement that their Memorandum of Understanding will help identify and end employer practices that cause workers to incur debt by forcing them to pay for employer-mandated training or equipment that they might not need, or that surveil workers and sell their personal data to financial institutions, insurers, and other employers. These actions, the agencies said, may violate the FCRA and other consumer financial protection laws. As previously covered by InfoBytes, last June the Bureau launched an inquiry into employer-driven debt practices. The request for information focused on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, and sought information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.” 

    “Many workers discover that getting a job can mean piling up debt instead of making a living,” CFPB Director Rohit Chopra said in the announcement. “Information sharing with the [NLRB] will support our efforts to end debt traps that stop workers from leaving one job for another.” NLRB General Counsel Jennifer Abruzzo agreed, adding that as the “economy, industries and workplaces continue to change, we are excited to work with CFPB to strengthen our whole-of-government approach and ensure that employers obey the law and workers are able to fully and freely exercise their rights without interference or adverse consequences.”

    Federal Issues CFPB NLRB Consumer Protection MOUs Employer-Driven Debt Products FCRA Surveillance Consumer Finance

  • CFPB launches inquiry into employer-driven debt practices

    Federal Issues

    On June 9, the CFPB issued a request for information (RFI) seeking public input on practices and financial products that may cause an employee to owe a debt to their employer. The Bureau’s focus is on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, including training repayment agreements where employees are required to repay the costs of job training should they voluntarily or involuntarily leave a job within a set time period. Other employer-driven debt products include up-front purchases of equipment or other supplies that are not paid for by the employer—a common occurrence when workers are outsourced or classified as independent contractors. Among other things, the RFI seeks information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.” The Bureau is particularly interested in whether consumers “have a meaningful choice” in agreeing to these products, what these agreements’ terms and conditions are, and whether they might prevent individuals from seeking alternative employment. “The labor market operates at its best when workers are able to move freely within it,” CFPB Director Rohit Chopra said in the announcement, noting that the inquiry will study “the effects of an emerging form of debt that may have the potential to trap employees in place.”

    Federal Issues CFPB Consumer Finance Employer-Driven Debt Products

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