The Consumer Financial Protection Bureau (CFPB) has published a report highlighting the risks of employer-driven debt poses to its workers, descriing the growing prevalence of employer-driven debt and challenges workers face when they are indebted to an employer as a condition of employment. CFPB Director Rohit Chopra said such debts are suppressing wages and binding workers to their jobs.
“Employer-driven debt poses the risk of suppressing wages and forcing workers to stay in jobs they do not want,” CFPB Director Rohit Chopra said in a news release. “When it comes to consumer lending, federal law protects Americans even when they are on duty at work.”
CFPB reported that training repayment agreement provisions (TRAPs) and other forms of employer-driven debt have negative effects on workers' financial well-being, and CFPB launched a formal inquiry in June to gather more information about the issue.
According to a CFPB public inquiry, employer-driven debt is becoming more common, with the usage of training repayment agreement clauses, which might limit worker mobility, especially when it comes to securing greater salaries. Employer-driven debt can be used to pay for a variety of goods and services, including the upfront costs of purchasing tools and supplies that the employer demands a worker use.
Employers use TRAP clauses to make employees consent to paying back the ostensible expenses of training if they quit their jobs before the end of a commitment period. In some cases, employees could be required to consent to debt agreements that require repayment of the obligation if the employee leaves the employer before a certain date.
The CFPB data revealed several instances in which workers suffered particular hardships because of debts incurred by their employers. The effects were largely brought on by the fact that employer-driven debts are firmly linked to a worker's employment and that the lender, rather than the employer, is in charge of the debt. The report also stated that employees are hurried through the loan application process, then forced to take on debt as a condition for employment. Some companies even employ high-pressure techniques, such as giving employees the sense that the position would not be open if they took the time to carefully research and analyze loan and contract details, the report stated.
In addition, employees are forced to sign documents when they start working for a company that appear to provide the employer the right to unilaterally alter the terms and conditions of the financial product without the worker's knowledge or consent. Employer-driven debt creates hurdles to pay growth and professional advancement, and can also be structured in a way that requires employees to make significant payments if they leave a job, despite the fact that it is frequently promoted to workers as a way to boost earnings and career mobility. As such, limiting mobility and deterring firms from increasing wages to keep workers give TRAPs and employer-driven debt the same effect as a non-compete clause, CFPB explained.
