The surviving payments provisions of the Consumer Financial Protection Bureau’s (CFPB) Payday Loan Rule finally went into effect on March 30, 2025.  This article explains three surprising facts about the rule and its significance to consumer practitioners.  While the core ability-to-repay provisions of the original Payday Loan Rule were rescinded, the payments provisions still provide important protections. The rule also applies to many forms of high-cost lending, not just to payday loans.  And, despite not directly providing a private right of action, consumers can still use the rule in private litigation.

The Rule’s Procedural History and Effective Date

The CFPB’s Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule was first promulgated by the CFPB in 2017. Although the CFPB later rescinded the rule’s core ability-to-repay requirements, it retained the portion of the rule discussed in this article (referred to as the “Payday Payments Rule” or the “Payday Loan Rule”). 

After the rule was finalized in 2020, the rule was delayed by litigation, including a constitutional challenge to the CFPB’s funding, which the Supreme Court rejected. As of March 30, 2025, the rule is now in effect.  See Cmty. Fin. Serv. Assoc. of Am. v. Consumer Fin. Prot. Bureau, No. 21-50826 (5th Cir. Oct. 14, 2021) (delaying rule until 286 days after resolution of the appeal); Cmty. Fin. Servs. Ass’n of Am., Ltd. v. Consumer Fin. Prot. Bureau, 104 F.4th 930 (5th Cir. 2024) (final order resolving appeal).

Although the rule is now in effect, the CFPB announced on March 28, 2025, that it would not prioritize enforcement or supervision actions regarding the rule and was considering issuing a proposed rulemaking to further narrow its scope.  But, as described below, state attorneys general can enforce the rule directly, and consumers can also utilize the rule in private litigation.

The Problem

Most high-cost lenders today require, or effectively require, consumers to authorize loan payments to come automatically out of the consumer’s bank account. While the EFTA, at 15 U.S.C. § 1693k, prohibits such creditor requirements for preauthorized electronic fund transfers for loans with recurring payments, creditors often condition fast loan disbursement on such automatic payments. Whether this is legal is examined at NCLC’s Consumer Banking and Payments Law § 7.9.7.1.

These automatic payments out of the consumer’s bank account can be in the form of a post-dated check, a preauthorization for an electronic (ACH) payment, or a debit card payment. These automatic payments can be used for single-payment loans like payday loans and for loans with multiple payments like installment loans or lines of credit.

These automatic payments can help lenders collect on unaffordable loans, as the payments are often timed with the consumer’s payday. But even then, the payments can bounce if the payment is mistimed, if other payments come out of the account first, if the consumer loses their income, or for other reasons.  An attempt to withdraw payment from the consumer’s bank account when there are insufficient funds can lead to extraordinarily high fees charged by the consumer’s bank and by the lender, including overdraft fees (when the bank covers the payment), insufficient fund (NSF) fees (when the payment is rejected or bounces), or both.  

The cost of these fees can be multiplied when the lender attempts to withdraw payment from the consumer’s account repeatedly after the first attempted transfer fails. Lenders tend to re-attempt a transfer after an initial failure, hoping that later attempts will succeed if the consumer’s account has had a subsequent deposit. When a payment is rejected, depending on the payment mechanism, many banks will charge an NSF fee, sometimes multiple times if the payment is re-presented. (Though charging multiple NSF fees for the same transaction may be an unfair practice. See NCLC’s Consumer Banking & Payments Law § 5.11.5.)  

These fees are especially problematic on predatory high-cost loans that do not adequately consider ability-to-repay. With the core ability-to-repay requirements rescinded, the limits on re-presentment of payments that bounce at least helps to limit the damage of unaffordable loans.

The Payday Payments Rule Requirements

The Payday Loan Rule deems it an unfair and abusive practice for lenders to attempt to withdraw payment from a consumer’s account after the lender’s second consecutive attempt fails due to a lack of sufficient funds unless the lender obtains a new authorization from the consumer. 12 C.F.R. § 1041.7. 

The rule applies to any lender-initiated debit or withdrawal of funds from the consumer’s account to collect on a covered loan, including by:

• Electronic funds transfer (including ACH payments, debit card payments, and other EFTs, as defined at 12 C.F.R. § 1005.3(b); see NCLC’s Consumer Banking & Payments Law § 7.3.3);
• Signature checks;
• Remotely created checks;
• Remotely created payment orders; and
• Intra-institution transfers unless the conditions for an exemption are met (including not charging fees or closing the account in response to a failed transfer).

See 12 C.F.R. § 1041.8(a)(1).

The rule defines what a first and second consecutive failed payment transfer attempt is and prohibits transfer attempts after two consecutive failed transfers unless the lender obtains a new authorization. 12 C.F.R. § 1041.8(b). A new authorization may be one for recurring payments or may be one for a single immediate transfer at the consumer’s request. The rule includes requirements and conditions for obtaining the consumer’s authorization. There are specific authorization requirements and conditions that must be met before the lender can initiate payment transfer to collect a late fee or return item fee for failed transfers. 12 C.F.R. § 1041.8(c), (d). 

The rule also has disclosure requirements before the first payment withdrawal, before a usual withdrawal, and after two consecutive failed payment transfers. The rule discusses when and how the disclosures may be provided electronically and the rule also sets out important record retention requirements. 12 C.F.R. § 1041.9(b), (c).

The Rule Applies Both to Resubmitted and to Future Payments

An important application of the rule is that a lender is not only barred from resubmitting a particular payment a third time, the creditor also may not attempt to withdraw future payments on that loan or any other covered loan that the consumer has with the same lender unless the consumer provides a new authorization. 

For example, if an installment loan or open-end loan requires monthly payments and the lender’s attempt to withdraw January’s payment has failed twice, then the lender cannot attempt any other transfer. The lender cannot attempt a transfer for January’s payment, February’s payment, or any other future payment on that loan unless and until the consumer provides a new authorization.  

As a result, consumers are protected from the overdraft and NSF fees associated with an automatic withdrawal from a low-balance bank account. This can be an important way of protecting consumers from unaffordable longer-term loans. Of course, even though the lender may be prohibited from debiting the consumer’s account, the consumer will still owe the loan and could be subject to debt collection efforts.

The Rule’s Surprising Application to Many Types of Predatory Loans

As the Payday Loan Rule’s formal title of “Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule” indicates, the rule applies to many forms of high-cost lending beyond payday loans. The rule applies to any of the following types of loans where the lender can initiate a transfer of money, through any means, from a consumer’s bank account to satisfy an obligation on the loan:

• Loans of 45 days or less;
• Loans longer than 45 days with a balloon payment more than twice as large as other payments;
• Loans where the cost of credit exceeds 36% if the lender obtains a leveraged payment mechanism (generally the right to initiate a transfer of money, through any means, from a consumer’s account to satisfy an obligation on a loan).12 C.F.R. § 1041.3(b).

The rule thus applies to payday loans, many high-cost installment loans, auto title loans, and other forms of high-cost credit and a wide range of consumer loans. The rule also explicitly excludes certain types of credit, including:

• Purchase money loans that include a security interest in the item purchased;
• Real-estate-secured credit;
• Credit cards;
• Student loans;
• Non-recourse pawn loans;
• Overdraft loans and lines of credit;
• Certain wage advance programs (see NCLC’s Consumer Credit Regulation § 9.10, to be renumbered as § 10.10 in the forthcoming revised edition) provided in connection with the employer or the employer’s business partner; and
• No-cost advances.

12 C.F.R. § 1041.3(d).

There is also an exception for “alternative loans”: closed-end loans of $200 to $1,000, with a term of one to six months, repayable in two or more installments, that follow the fee and rate cap rules for the NCUA’s payday loan alternative program (PAL) (28% APR or less, and no more than a $20 fee). 12 C.F.R. § 1041.3(e).

The exception for “no-cost advances” applies to advances that are credit if the consumer is not required to pay any charge or fee and the lender warrants that it has no legal or contractual claim against the consumer and will not engage in debt collection or sell the debt if it is not repaid. That exception is designed to reach direct-to-consumer “earned wage” advances that request voluntary “tips” but have no fees or charges that the consumer is required to pay. 

One should question though whether purportedly voluntary tips or fees are in fact voluntary. See CFPB, Proposed Rule, Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work, 89 Fed. Reg. 61,358, 61,362 (July 31, 2024); FTC, Press Release, FTC Acts to Stop FloatMe’s Deceptive ‘Free Money’ Promises, Discriminatory Cash Advance Practices, and Baseless Claims around Algorithmic Underwriting (Jan. 24, 2024); NCLC’s Consumer Banking and Payments Law § 7.9.7.2; NCLC’s Truth in Lending § 3.6.3.1a; NCLC’s Consumer Credit Regulation §§ 4.2.2, 9.10.4.8 (to be renumbered as § 5.2.2, and § 10.10.4.8 in the forthcoming revised edition). 

The rule should apply to the growing use of “pay-in-four” “buy now, pay later” loans, which are typically set up to require the first payment at the point of sale, and the next three payments at two-week intervals, for a total repayment period of forty-two days. However, the “buy now, pay later” industry has requested an exemption from the rule, and the CFPB has indicated that it may narrow the scope of the rule. CFPB, CFPB Offers Regulatory Relief for Small Loan Providers (Mar. 28, 2025).

For further detail on the scope of the Payday Loan Rule, see the CFPB’s Small Entity Compliance Guide on the topic. See also NCLC’s Consumer Credit Regulation § 9.4.2, to be renumbered as § 10.4.2 in the forthcoming revised edition.

The Rule’s Surprising Application to Private Litigation

The CFPB adopted the Payday Payments Rule under its Dodd-Frank Act authority to prohibit unfair, deceptive, or abusive acts or practices (UDAAP). The rule can be enforced by the CFPB, state attorneys general, and state regulators, but there is no direct private right of action for consumers.

Nevertheless, the rule should facilitate private consumer litigation in several ways. After a lender has made two consecutive unsuccessful payment attempts, the Payday Loan Rule prohibits the lender from making additional transfers from the consumer’s account unless the lender obtains a new authorization from the consumer as specified in the rule. That is, the rule revokes the lender’s authorization to debit the account. Consequently, if the lender makes a third payment attempt without obtaining a new authorization from the consumer, that attempt is unauthorized.

If that unauthorized payment is through an electronic fund transfer, then it would be an unauthorized payment in violation of the Electronic Fund Transfer Act (EFTA) and Regulation E, giving the consumer the right to recover from the bank any unauthorized amount transferred. The bank should also not charge a fee for an unsuccessful unauthorized transfer. See NCLC’s Consumer Banking and Payments Law §§ 7.5.1.1, 7.7.2, 7.9.3.1, 7.15.

If the lender contemplates repeat transfers, i.e., payments on an installment loan or, under some circumstances, rollovers of single-payment loans, then the consumer could also have a cause of action against the payee for violating the EFTA’s authorization rules for preauthorized electronic fund transfers. See NCLC’s Consumer Banking and Payments Law § 7.9.  And the authorization rules that apply to late or returned item fees might also make payment transfer attempts to collect those fees unauthorized under the EFTA. 

If the payment attempt is through a remotely created check, then the check, being unauthorized, would not be properly signed and would not be properly payable out of the consumer’s account. The consumer would have a claim against the bank for repayment of the check amount, and a bank fee for a bounced check should be eliminated. See NCLC’s Consumer Banking and Payments Law §§ 3.9.2.1, 3.16.3.1, 3.16.3.2.

Violation of the CFPB’s Payday Payments Rule may also be actionable under a state UDAP statute since the CFPB has found that the practices prohibited by the rule are unfair and abusive. See12 C.F.R. § 1041.7. The CFPB’s analysis as to why the practice is unfair should provide guidance to a court when determining whether the same act is an unfair practice under a state UDAP statute.  See 82 Fed. Reg. 54,472 (Nov. 17, 2017). See also newly released NCLC’s Unfair and Deceptive Acts and Practices § 3.2.6. A violation of the rule may also be actionable as a contract law claim for violation of the implied covenant of good faith and fair dealing.

Additionally, the rule’s record-keeping requirements may prove useful in consumer litigation even if the litigation is not related to a violation of the Payday Payments Rule. For example, the records could be helpful in showing a pattern of predatory lending and making unaffordable loans.

The rule requires lenders covered by the rule to retain certain records for three years after the date on which a covered loan ceases to be an outstanding loan 12 C.F.R. § 1041.12(b). The consumer should be able to access these records through discovery. 

The lender must keep all records showing rule compliance and not just records that the rule specifically requires to be retained.  See Official Interpretations § 1041.12(b)-1. The following is a non-exhaustive list of the records the lender must retain: 

• The loan agreement for each covered loan that the lender originates;
• The type of payment transfer to the lender authorized by the consumer;
• Any consumer authorization for additional payment transfers; and
• The underlying one-time electronic transfer authorization or underlying signature check.

The lender must also retain electronic records in a tabular format that includes the history of payments received and attempted payment transfers, including the date of a payment transfer or attempted transfer, the amount due, the amount of attempted transfer, the amount transferred and payment method for the transfer, and any consumer authorization for the transfer. This information could be helpful in showing that a lender is engaging in unfair, abusive or unconscionable lending practices.