Several years ago, the Consumer Financial Protection Bureau (CFPB) took a big step to protect consumers from unfair and abusive practices in the payday and installment lending industry. After a thorough review of the market, the CFPB discovered a troubling trend: lenders repeatedly attempting to withdraw money from consumers’ accounts even after the accounts were empty. One particularly shocking example revealed a lender making 11 failed withdrawal attempts in a single day.
These repeated attempts resulted in a bunch of fees for the consumers, including nonsufficient funds fees and overdraft fees, and in some cases, led to account closures. This practice not only inflicted financial pain on borrowers but also proved largely ineffective for lenders. Unsurprisingly, if multiple withdrawal attempts fail, further attempts are unlikely to succeed.
In response to these findings, the CFPB issued a regulation in 2017 implementing a “two-strikes-and-you’re-out” rule. Under this rule, if two consecutive attempts to withdraw money from an account fail, lenders are prohibited from making further attempts unless the borrower explicitly authorizes it.
The CFPB has a FAQ compliance resource pertaining to the Payday Lending Rule and it can be found here: https://www.consumerfinance.gov/compliance/compliance-resources/consumer-lending-resources/payday-lending-rule/payday-lending-rule-faqs/
The regulation was initially scheduled to take effect in 2019 but faced delays due to litigation from the payday lending industry, which sought to block the rule. In 2022, the court of appeals rejected most of the lenders’ claims, upheld the CFPB’s determination that the practice was unfair, and affirmed the rule’s reasonableness. Recently, the Supreme Court’s decision in CFPB v. CFSA dismissed the lenders’ remaining claim regarding the CFPB’s funding, paving the way for the rule’s implementation.
With the appeals process concluded, the rule is set to take effect. A court order currently pausing the rule will expire 286 days after the Supreme Court enters its judgment in the case, (June 17). Consequently, the rule is anticipated to be enforced starting March 30, 2025. This long-awaited regulation will finally provide essential protections for borrowers, putting an end to an abusive collections practice that has persisted for far too long.
The implementation of this rule marks a significant victory for consumer protection, ensuring that borrowers are no longer subjected to relentless and harmful withdrawal attempts. As the effective date approaches, consumers can look forward to a fairer lending environment and relief from the cycle of fees and financial instability caused by these unfair practices.
Author: Jennifer Evancic
Jennifer.Evancic@ResourceManagement.com
Jennifer Evancic is a third-party auditor valued by creditors and large organizations for her knowledge in call monitoring within the collections industry. With meticulous attention to detail and a firm grasp of regulatory requirements, she ensures compliance with clients’ criteria and state and federal regulations.
Jennifer audits collections calls, ensuring they meet client-specific criteria and comply with regulations, providing valuable insights and maintaining industry standards.
Beyond her auditing responsibilities, Jennifer takes the lead in organizing and facilitating monthly call calibrations. These sessions serve as a collaborative forum where clients and their vendors come together to discuss call monitoring results and address any findings or areas for improvement. Jennifer’s guidance fosters open communication and ensures alignment between clients and vendors, driving continuous improvement in collections practices.
Jennifer stays up-to-date with compliance and industry best practices by participating regularly in peer meetings, regulatory updates and industry webinars. This keeps her informed about emerging issues and ensures she remains a knowledgeable leader in collections compliance.
Sign Up for the Twice Monthly Newsletter
Just enter your email address at the top orange bar at:
Collection Compliance Experts – “The Power of Expertise: Oversight Perfected”
It’s that easy! Twice a month – we provide blog updates and Resources for the Collection and Industry Professional.
Your email is just for this newsletter. We never sell your information. No fee. Opt-out at any time.
