CFPB will not enforce payday lending rule

The Consumer Financial Protection Bureau said Friday that it will not enforce the payday lending rule that goes into effect on Sunday and plans to narrow the scope of the rule with a future rulemaking.

The last-minute reprieve was shockingly broad. The bureau posted a brief announcement on its website under the headline: “CFPB Offers Regulatory Relief for Small Loan Providers.”

The CFPB said it will not enforce or supervise any payday, vehicle title or high-cost installment lenders and plans to issue no fines or penalties associated with the rule. It is unclear if the bureau will be sued for refusing to enforce a final rule that has taken eight years to go into effect. That delay is largely attributable to legal challenges by payday trade groups.  

The CFPB said “it will not prioritize enforcement or supervision actions with regard to any penalties or fines associated with the Payment Withdrawal provisions and the Payment Disclosure provisions once they become operative on March 30, 2025.” 

The U.S. Court of Appeals for the 5th Circuit upheld the small-dollar rule’s payment provisions, which limit the ability of lenders to withdraw payments from a customer’s bank account after two consecutive failed attempts. For a third attempt, lenders are required to send a “consumer rights notice,” to get consent for further payments. The rule states that repeated attempts at automatic withdrawals constitutes an unfair and abusive practice.

The bureau also said it is “further contemplating issuing a notice of proposed rulemaking to narrow the scope of the rule.” It did not say when a new rulemaking would be issued.

Lauren Saunders, associate director of the National Consumer Law Center, said the CFPB’s leadership “is now refusing to enforce the law.”

The CFPB’s payday lending was created to protect consumers by preventing lenders from repeatedly attempting to withdraw payments from a borrower’s account after two consecutive attempts fail, and by requiring lenders to provide specific notices and obtain new authorization for further withdrawals. 

The bureau under the Trump administration is entering uncharted territory by unilaterally deciding not to enforce the law. Going forward, it is unclear if a consumer will get any recourse if a lender taps their account multiple times and the customer charged for nonsufficient funds or overdraft fees.

Saunders noted that the 5th Circuit had upheld “the bare minimum protection” against multiple nonsufficient funds fees but consumers will get no relief.

“It’s outrageous that the CFPB will not enforce the law that prohibits payday lenders and other 200% APR lenders from continually debiting people’s accounts, subjecting them to multiple NSF and overdraft fees,” Saunders said.

The American Fintech Council lobbied the CFPB to exclude BNPL lenders from the rule. The trade group argued that BNPL providers would be crippled by a requirement that lenders provide a “first payment withdrawal notice” at least three business days before the first attempt to withdraw funds from a consumer’s account. BNPL loans are made instantaneously at the point of sale, making disclosures for the first payment operationally difficult. BNPL loans are paid off in installments. 

Still, the CFPB’s announcement that it will not enforce or supervise the payday rule implies that lenders do not have to comply with the law. 

Andrew Duke, CEO of the Online Lenders Alliance and a former policy associate director at the CFPB, said the rule is outdated.  

“We applaud the CFPB for hitting the brakes on the Small Dollar Rule’s payment provisions,” Duke said. “This was a politically driven rule when it was released in 2017, and now it is an outdated, politically driven rule.”

Rather than enforce or supervise small-dollar lenders, the CFPB said it will “keep its enforcement and supervision resources focused on pressing threats to consumers, particularly servicemen and veterans.”

The payday rule was first promulgated in 2017 under former CFPB Director Richard Cordray, who sought tough ability-to-repay underwriting requirements that the industry opposed. Payday lenders challenged the rule and former CFPB Director Kathy Kraninger in the first Trump administration rescinded the underwriting requirements, leaving so-called payment provisions in place.