Consumer protection is not just a regulatory obligation - it is a responsibility shared by lenders, policymakers, and industry leaders. When designed and implemented successfully, regulations safeguard consumers without suppressing access to credit. But when regulations miss the mark, the ramifications often weigh heaviest on the very people it was designed to help.
A recent American Banker opinion piece by Andrew Duke, “The CFPB’s Small-Dollar Lending RuleHas Clearly Backfired on Consumers,” features a mounting body of evidence that the Consumer FinancialProtection Bureau’s small-dollar lending rule has unfortunately done just that.
Rooted in Theory, Not Reality
The CFPB finalized its small-dollar lending rule in 2017. One of it’s primary goals? Protect consumers from repeated payment attempts and bank fees. However justifiable the intent, the rule prescribed a rigid framework not accounting for the reality of how consumers manage their finances.
Although the most restrictive ability-to-repay requirements were retracted in 2020, the remaining payment-related provisions which began impacting operations in early 2025, have proven deeply problematic in practice. The result? Increased delinquencies, higher defaults, and reduced access to credit.
When Consumer Protection Becomes Consumer Friction
One of the most distressing results highlighted in the American Banker article is that rising charge-offs are not necessarily driven by borrowers’ inability to repay, but, instead, by the rule making it operationally harder for willing borrowers to do so.
Lenders report the rigidity of the rule’s restrictions disrupt normal repayment flows, elevating customer confusion and preventing prompt payment reattempts– even when funds are available. In other words, borrowers who want to stay current are sometimes prevented from doing because of the regulation’s design.
Less Access for Those With the Fewest Options
Lenders have been forced to tighten credit to offset the operational and compliance risks created by the rule, resulting in less credit access and fewer approvals for the lowest scoring credit segments. The consumers in these segments are the same consumers who are least likely to have access to traditional credit products and, therefore, are most reliant on small-dollar loans to manage short-term financial needs.
While the regulation may have aimed to protect vulnerable consumers, it has actually stripped away what few options they had in the first place.
Ignoring a Consumer’s Need for Flexibility
Further impact of the rule has been the elimination of payment structures which fail to align with how many people are paid. Weekly payment schedules are not only preferred by some, but it’s also often the only option for gig workers, hourly employees, and construction workers. This consumer segment has now been denied access to credit by some lenders because the rule’s notification and reauthorization requirements make them too impractical to implement and sustain.
Income volatility is rising and non-traditional work arrangements are more common than ever. Removing income-aligned payment options hasn’t proven to make repayment safer… only more difficult.
Out of Sync With Today’s Market
Over time, justification for the rule has weakened. Prior to the rule taking effect, the CFPB documented a significant decline in bank fees related to repeated payment attempts. Consumer complaints specific to payment debits also declined, even as complaints across other financial products continue to rise.
In short, the market changed without the rule.
A Smarter Path Forward
Consumer protection and credit access do not have to be mutually exclusive. Smart regulation should encourage clarity, resilience, and innovation, allowing lenders and consumers to work together to achieve successful outcomes.
The evidence that the CFPB’s small-dollar lending rule is hurting more than helping continues to build. It suppresses choice, inflates confusion, and ultimately limits access to credit for those who need it most.
As the CFPB considers revisiting this rule, it has an opportunity to course-correct with framework rooted in consumer behavior and financial reality.
Consumers deserve protection, but they also deserve access, flexibility, and policies that help them succeed.
