CFPB to Begin Enforcing Payday Lending Rule Next Year

Regulation was tied up in court case

Following a court-ordered delay, the Consumer Financial Protection Bureau intends to begin enforcing its long-awaited payday lending rule on March 30, 2025, agency officials said last week. The rule limits the number of times a lender may attempt to withdraw money from a borrower’s bank account after discovering no money is available.

“To address lenders’ unfair and abusive collection practices, the CFPB issued a regulation in 2017 adopting a two-strikes-and-you’re-out rule,” the CFPB said. “Under that rule, after two tries to withdraw money from an account have failed, covered lenders can’t try again unless the borrower specifically authorizes another attempt.”

In many cases, payday lenders may withdraw payments from a borrower’s bank account. Agency officials said that payday lenders often repeatedly try to withdraw funds from a borrower’s account even after discovering that the person has no money in it. “The result for consumers was a pile of junk fees: With each failed withdrawal attempt, the borrower might be charged nonsufficient fund fees, overdraft fees, and others,” the CFPB said.

The payday lending rule has had a long and bumpy history. When it was proposed in 2017, the rule also required lenders to ensure that a borrower had an ability to repay their loan before the loan could be made. However, the Trump Administration amended the rule and dropped that provision.

Meanwhile, the Community Financial Services Association of America, a trade group representing payday lenders, filed suit against the CFPB, challenging the rule and arguing that the agency’s funding mechanism was unconstitutional since the bureau was not funded through the appropriations process.

In 2022, the Fifth Circuit Court of Appeals said the agency’s rule was within the bureau’s powers but found that the agency’s funding was unconstitutional. Under a Fifth Circuit court order, the CFPB was permitted to begin enforcing the rule 286 days after the funding issue was resolved. The U.S. Supreme Court last month ruled the agency’s funding mechanism was constitutional. As a result, the agency expects to begin enforcing the rule on March 30, 2025.

“Once that happens, the rule’s important and long-delayed protections for borrowers can finally put an end to an unfair and abusive collections practice that has gone on too long,” the CFPB said.