Risks that “employer-driven debt” poses to workers – by allegedly tying workers to their employers that pay for retraining or other education as a condition of employment – is outlined in a report issued Thursday by the federal consumer financial protection agency.
The Consumer Financial Protection Bureau (CFPB) said its issue spotlight looks at the use of so-called “training repayment agreement provisions (TRAPs),” which the agency alleged can impede worker mobility, particularly when it comes to obtaining higher wages.
“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,” the bureau said in the report. “TRAPs are a common form of employer-driven debt. 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.”
About a year ago (Jun 2022), the bureau said, it started a formal inquiry about employer-driven debt. The agency said it found “numerous ways” workers are harmed through the practice (such as debts being tied to employment) but others too – including that the debt is controlled not by the employer but by a separate lending entity.
Additional risks to workers, the agency asserted are: workers are rushed through the loan sign-up process; employers use bait-and-switch fine print; and employer-driven debt puts up barriers to career advancement and higher wages.
CFPB Report Shows Workers Face Risks from Employer-Driven Debt