Court Denies Payday Lenders’ Challenge to CFPB Small-Dollar Rule, Sets Compliance Date

A federal district court on Tuesday denied payday lenders’ challenge to the CFPB’s 2017 small-dollar lending rule. The court set the rule’s compliance date for 286 days after issuance of the court’s order, which is June 13, 2022.

When issued in 2017, the rule included prescriptive underwriting provisions and payment provisions, but it now includes only the payment provisions, after the CFPB rescinded the rule’s underwriting provisions in 2020. The payment provisions prohibit lenders, including banks, from making a new attempt to withdraw funds from an account after two consecutive failed attempts without consumer consent. Those provisions exempt attempted transfers by institutions that hold the borrower’s account and do not charge an insufficient funds or overdraft fee for the attempted withdrawal.

The court’s order does not disturb the complete exemption in the rule for banks and other depository institutions that made 2,500 or fewer small-dollar loans in each of the current and previous years and for which these loans account for no more than 10% of revenues. The American Bankers Association advocated for this provision to protect banks’ flexibility to serve their customers.

The payday lender trade associations may appeal the district court’s ruling, which could lead to a further stay of the rule’s compliance date.