The CFPB’s small-dollar lending rule has clearly backfired on consumers

The claim that the CFPB’s small‑dollar (payday) lending rule has “clearly backfired” on consumers is contested and not supported by a clear empirical consensus; evidence is mixed and often reflects the perspective of the party doing the analysis.​

Where the claim comes from

• Industry‑aligned commentators (e.g., Online Lenders Alliance, Community Financial Services Association of America, Competitive Enterprise Institute) argue the rule reduces access to credit, forces store closures, and drives borrowers toward more expensive or illegal lenders.​

• These critics point to projections that 66–80% of small‑dollar lenders could close or become unprofitable and claim this lost supply “hurts” consumers who rely on such loans for emergencies.​

What the rule actually does

• The original 2017 CFPB payday/small‑dollar rule focused on two main ideas: an “ability‑to‑repay” underwriting requirement for certain high‑cost short‑term loans and limits on repeated, failed debits from borrowers’ bank accounts.​

• In 2020, the CFPB rescinded the mandatory underwriting provisions, leaving mainly the payment‑withdrawal safeguards in place, which are designed to stop multiple failed debit attempts that trigger overdraft and NSF fees.​

Evidence on consumer outcomes

• Some industry‑backed studies and comment letters predict higher delinquencies, more defaults, and migration to unregulated lenders when payday access is restricted, but much of this is ex ante projection or based on narrow samples.​

• Academic work on payday bans and tight state‑level restrictions finds small and often statistically insignificant changes in broader credit delinquencies, suggesting neither a clear consumer “win” nor a clear “backfire.”​

Consumer‑protection perspective

• Consumer advocates argue the rule targets a “debt‑trap” model in which lenders repeatedly roll over loans or hit accounts with multiple debits, generating fee spirals and bank‑account closures.​

• From this view, reduced availability of very high‑cost payday loans is a feature, not a bug, and the payment provisions are framed as preventing unfair practices rather than restricting legitimate credit.​

How to interpret “backfired”

• Calling the rule a clear failure assumes that:

  • Access to any high‑cost credit is inherently beneficial, and

  • Lost access outweighs reductions in abusive practices and fee spirals.
    Those assumptions are strongly debated and not settled by the available data.​

• A more accurate characterization is that the rule involves a trade‑off between access to expensive credit and protection from practices seen as unfair or harmful, with contested empirical evidence on the net effect on consumer welfare.​