CFPB: American Workers Saddled by Employer-Driven Debt

America’s consumer watchdog says too many workers are falling into TRAPs.

That stands for “training repayment agreement provisions,” a form of employer-driven debt the Consumer Financial Protection Bureau (CFPB) says is impeding worker mobility.

“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 Thursday (July 20). “When it comes to consumer lending, federal law protects Americans even when they are on duty at work.”

According to the CFPB, a public inquiry by the agency found a growing prevalence of employer-driven debt, including the use of TRAPs.

Companies use TRAP provisions to force workers to agree to repay the cost of training if they leave their jobs before their contracts are up. In some cases, employees have to agree to debt products where the debt must be paid back if they depart before a certain date.

Last year, the CFPB began its inquiry to find out more about employer-driven debt, and discovered “numerous ways workers experience unique harms” through the practice. In most cases, these harms stem from the fact that this debt is tied to a worker’s employment, and controlled, not by the employer, but by a separate lending entity, the CFPB said.

Workers are also rushed through the loan sign-up process and could be pressured by employers into thinking their job opportunities could be denied to them if they took the time to carefully consider the loans.

And by not reviewing the loan terms, employees might miss the fine print that lets employers unilaterally change the terms and conditions of the financial product without worker permission.

While it’s often sold to workers as a way to boost earnings, employer-driven debt may be structured iso that employees must make large payments when they leave their jobs.

“This can impede labor mobility and dissuade employers from raising wages to retain employees,” the CFPB said. “TRAPs, and other forms of employer-driven debt, can have effects similar to non-compete agreements.”

The agency’s findings come as Americans are increasingly going into debt — via credit — to stay on top of their daily expenses.

Joint research from PYMNTS and Elan found that 45% of consumers with credit cards carry a revolving balance.

The data shows that 33% of consumers increased their reliance on credit cards in the last six months and just 15% decreased their card-related spending.

“High-spending revolvers were the most likely to shift more spending to their cards, as nearly half did so,” PYMNTS wrote recently. “And 43% of consumers who reported experiencing deeply negative impacts from higher prices ramped up their card spending did so.”