What Are Unregulated Debt Products?

In the past decade, online lenders have cre­at­ed new unreg­u­lat­ed debt prod­ucts that offer access to quick cash or let con­sumers delay pay­ments on pur­chas­es. While these short-term ​“fin­tech” advances may seem con­ve­nient, they pose sig­nif­i­cant risks to young con­sumers. Hid­den fees and an increased chance of over­drafts have the poten­tial to cre­ate cycles of debt and finan­cial insta­bil­i­ty. And, unlike tra­di­tion­al pay­day loans, these unreg­u­lat­ed prod­ucts may be exempt from state cred­it laws or reg­u­la­tions and offer lim­it­ed con­sumer protections.

Con­sumers who used unreg­u­lat­ed debt prod­ucts, such as earned wage or cash advances, saw a 56% increase in check­ing account over­drafts, accord­ing to a 2024 report from the Cen­ter for Respon­si­ble Lend­ing. Bor­row­ers also used mul­ti­ple lenders, and 75% of cus­tomers took out a new advance with­in a day of mak­ing a repay­ment on an ear­li­er one.

Explore eco­nom­ic well-being in America

“Unreg­u­lat­ed debt prod­ucts like cash advances or ​‘buy now, pay lat­er’ options are espe­cial­ly dan­ger­ous for young peo­ple, who often have lim­it­ed incomes and who may be liv­ing pay­check to pay­check,” said Francesca Jean-Bap­tiste, a senior asso­ciate with the Annie E. Casey Foun­da­tion. ​“It’s impor­tant con­sumers and law­mak­ers under­stand the risks of these prod­ucts and how they can harm a household’s finan­cial stability.”

Com­mon Types of Unreg­u­lat­ed Debt Prod­ucts and Apps

Some com­mon types of unreg­u­lat­ed debt prod­ucts and apps, as well as the poten­tial chal­lenges they present for users, include:

Cash Advances

These small, short-term loans offer con­sumers cash through a web­site or mobile phone app. Asso­ci­at­ed plat­forms ask con­sumers for access to their per­son­al bank accounts to facil­i­tate auto­mat­ic repay­ments. How­ev­er, these trans­ac­tions may sub­ject con­sumers to over­draft and addi­tion­al fees.

Earned Wage Advances

Like cash advances, these loans offer con­sumers faster access to mon­ey in exchange for a deduc­tion on their next pay­check. While some employ­ers offer these advances as a work­place ben­e­fit, they don’t always cov­er the asso­ci­at­ed costs and fees. Expen­sive fees and repeat­ed use can keep many users trapped in a cycle of borrowing.

“Buy Now, Pay Lat­er” Products

Retail­ers offer these online loans at check­out. They allow con­sumers to pur­chase cloth­ing, fur­ni­ture, appli­ances or even gro­ceries by split­ting pay­ment into a hand­ful of small­er install­ments over the course of three to six weeks. Although these loans do not typ­i­cal­ly charge inter­est, providers may charge sub­scrip­tion fees, late fees or missed pay­ment fees.

Fin­tech Bank­ing Apps

While not a debt prod­uct, fin­tech bank­ing apps like Cash App let peo­ple send and receive mon­ey to one anoth­er. How­ev­er, many of these apps are not FDIC-insured and, as a result, the funds they hold are not pro­tect­ed from theft or fraud. 

Read More About Unreg­u­lat­ed Debt Products

Below are four resources that pro­vide deep­er insights into unreg­u­lat­ed debt prod­ucts. These pub­li­ca­tions look at the impact of unreg­u­lat­ed debt prod­ucts and rec­om­mend steps to safe­guard consumers.

• “Pay­ing to be Paid: Con­sumer Pro­tec­tions Need­ed for Earned Wage Advances and Oth­er Fin­tech Cash Advances” (Cen­ter for Respon­si­ble Lend­ing, 2024) out­lines the risks of earned wage and cash advances.
• “State Pol­i­cy Rec­om­men­da­tions for Earned Wage Advances and Oth­er Fin­tech Cash Advances” (Cen­ter for Respon­si­ble Lend­ing and the Nation­al Con­sumer Law Cen­ter, 2023) offers guid­ance for state law­mak­ers seek­ing to pro­tect con­sumers from unreg­u­lat­ed debt prod­ucts. It rec­om­mends broad­en­ing exist­ing cred­it laws to explic­it­ly include prod­ucts like earned wage or cash advances.
• “New Rights for Buy Now, Pay Lat­er Pur­chas­es” (Nation­al Con­sumer Law Cen­ter, Con­sumer Finan­cial Pro­tec­tion Bureau, 2024) high­lights recent devel­op­ments in con­sumer pro­tec­tions, the risks that remain and offers advice for consumers.
• “Fin­Tech for Good” (Saver­Life, 2024) out­lines fin­tech prod­uct use and its impact on the finan­cial health of low- to mod­er­ate-income consumers.

Learn about a mul­ti­state approach to com­bat­ing sys­temic debt