NEWS: In a recent blog post, the CFPB announced that its Payday Lending Rule, which was put on hold during litigation, will go into effect on March 30, 2025.
The CFPB issued the rule in 2017. It was set to take effect in 2019, but a lawsuit by payday lenders led to delays. In 2022, a federal appeals court rejected most of the payday lenders’ claims. Then, last month, the U.S. Supreme Court issued a decision in CFPB v. CFSA that rejected the payday lenders’ sole remaining claim, pertaining to the CFPB’s funding. This opened the door once again for the rule to take effect. The League covered that Supreme Court decision in this Compliance Courier.
What the Payday Lending Rule does
The CFPB’s blog says that the rule was meant “to end an unfair and abusive practice in payday and installment lending. … [T]he CFPB found that even after a consumer’s account had been shown to be empty, lenders would keep trying to withdraw money from the account to pay off the loan – over and over and over again.”
To curb abusive collections practices, the regulation adopts a two-strikes-and-you’re-out approach: After two attempts to withdraw money from an account have failed, covered lenders can’t try again unless the borrower specifically authorizes another attempt.
The League summarizes the rule this way in ii Release No. B080 – “Payday and Vehicle Title Loans”:
A “lender” is defined in the CFPB’s federal Payday Lending Rule as a person that regularly extends credit to consumers primarily for personal, family, or household purposes. This includes credit unions.
The rule applies to lenders that make “covered loans” as that term is defined in the Rule. Generally, covered loans include:
- Covered short-term loans that require repayment within 45 days of consummation or an advance. Such loans are covered loans regardless of the cost of credit;
- Covered longer-term loans that have certain types of balloon-payment structures. These loans are also covered loans regardless of the cost of credit; and
- Covered longer-term loans that have a cost of credit exceeding a 36% annual percentage rate (APR) and that have a leveraged payment mechanism giving the lender the right to initiate transfers from the consumer’s account without further action by the consumer.
Certain accommodation loans and alternative loans that generally conform to the National Credit Union Administration’s (NCUA’s) requirements for the Payday Alternative Loan (PAL) program set forth in 12 CFR 701.21(c)(7)(iii) are exempted from being covered loans. Eight other types of loans are excluded from being covered loans. For example, perfected mortgage loans, purchase money security interest loans, credit card accounts, and certain overdraft services and overdraft lines of credit are not covered loans.
The rule imposes two types of requirements regarding lenders’ repeated attempts to withdraw payments from consumers’ accounts after prior attempts have failed due to insufficient funds:
- First, where two consecutive withdrawal attempts have failed due to insufficient funds, the Rule prohibits a lender from attempting another withdrawal from the same account unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. This prohibition on further withdrawal attempts applies whether the two failed attempts are initiated through a single payment channel or different channels, such as the automated clearinghouse (ACH) system or the check network. These requirements do not apply to a lender’s withdrawal attempts if the lender is the institution that holds the consumer’s account and if the lender meets certain conditions.
- Second, a lender is required to provide a written notice before its first attempt to withdraw payment for a covered loan from a consumer’s account and before subsequent attempts that deviate from scheduled amounts or dates or that involve a different payment channel than the prior attempt. The Rule also requires a lender to provide a consumer rights notice if two consecutive attempts to withdraw payment have failed due to insufficient funds in a consumer’s account. The Rule details the information that must be included in the notices and how they can be provided, including permissible methods of electronic delivery. The Rule’s notice requirements do not apply to a lender’s withdrawal attempts if the lender is the institution that holds the consumer’s account and the lender meets certain conditions.
A lender making a covered loan must develop and follow written policies and procedures designed to ensure compliance with the rule. Lenders must also retain evidence of compliance for 36 months. The rule outlines the types and format of information that lenders must retain.
The League is updating the ii Release to reflect the new 2025 effective date.
Other resources
Rather than independently summarizing the rule, our ii Release includes a copy of the CFPB’s current “Small Entity Compliance Guide” to the rule.
To support implementation of the new rule, this CFPB web page links to materials to help credit unions comply, such as frequently asked questions.
Also, see this August 2020 NCUA regulatory alert about the Payday Lending Rule.