Fourteen years ago, before buy-now-pay-later apps, before CashApp was mainstream, and when half of Americans still got paid with paper checks, the Consumer Financial Protection Bureau set its sights on storefront payday lenders. A narrow, politically charged rule emerged, crafted in coordination with groups like the trial-lawyer-funded National Consumer Law Center, that never accounted for innovation in fintech or the real-world needs of working families. After a decade of delay and litigation, the CFPB’s flawed small-dollar lending rule is poised to take effect, and its consequences will hit hardest at America’s kitchen tables.
Unlike the CFPB bureaucrats or the National Consumer Law Center attorneys, I’ve walked into a bank and tried to apply for a short-term loan. I’ve felt the confusion, the humiliation, the time drain, and I’ve seen firsthand how inaccessible these supposedly “safe” alternatives are. The regulators writing these rules have never stood in line at a branch, navigated the broken websites, and never had to wait 12 months just to become eligible for a $200 loan. Their policies are built on academic theory and political agenda, not real-world experience. This kind of armchair regulation fails because it comes from people who fundamentally do not understand the products they’re trying to control. That’s what makes my perspective different: I’ve lived it.
Let’s be clear: this rule doesn’t just target payday lenders, it targets the consumers who can least afford it. It imposes a one-of-a-kind, punitive payment system that only applies to borrowers with imperfect credit: people who’ve made mistakes, faced emergencies, or live paycheck to paycheck. If a borrower has two unsuccessful payment attempts on a single short-term loan, the rule forces lenders to halt all future payment attempts, no matter the borrower’s intent, past repayment history, or financial situation. No other loan product punishes struggling borrowers this way. It’s a harsh penalty reserved for those on the lower rung of the credit ladder. It is a glaring example of the two-tier financial system that treats the well-off with flexibility and the working class with rigid, bureaucratic disdain.
Contrast that with how most loan payments work today. If a payment fails, banks will typically attempt the debit again, up to three times. After that, lenders contact the borrower directly to work out a solution. That’s a flexible and common-sense approach. However, under the CFPB’s rule, if a gig worker with variable weekly income misses two payments, perhaps due to an overdraft or timing issue, not only does that loan freeze, but their access to short-term credit disappears overnight. Late fees pile up. Defaults become more likely. And worse, the freeze applies across all short-term loans from that lender, potentially affecting dozens of payments.
The result? A cascading cycle of default, debanking, and damaged credit. This is precisely as the FDIC reports historic progress in reducing the number of unbanked Americans. This misguided rule threatens to reverse that trend.
The people most affected are the same consumers these rules claim to protect: gig workers, hourly employees, and families living paycheck to paycheck. Short-term credit fills temporary but critical gaps: car repairs, medical bills, and travel for a sick relative. The CFPB’s rule doesn’t solve a problem; it creates one by making it more expensive and legally risky for banks and fintech to serve these borrowers.
Even the CFPB’s own complaint data undermines the need for this rule. Between the mid-2010s and early 2020s, complaints about unauthorized or repeated debits fell by more than 80%. The existing payment system, while not perfect, is functioning. But instead of recognizing that progress, the Biden Administration fast-tracked an outdated rule that Congress expected agencies to review and revise under Dodd-Frank and the Regulatory Flexibility Act. That review never happened.
And this isn’t just a federal problem. Across the country, trial-lawyer-backed activist groups are pushing for even more aggressive regulations at the state level. Proposed amendments to Alaska’s Small Loan Act would gut bank-fintech partnerships that provide digital-first access to credit, which is vital in rural regions where bank branches are few and far between. A similar bill in Oregon would entirely opt the state out of the federal banking system, cutting off access to flexible credit from responsible lenders. The consequences are predictable: fewer legal options and a resurgence of unsafe, unregulated lending.
At a time when Americans are managing higher costs, depleted savings, and volatile incomes, we need more credit options, not fewer. Instead of imposing a novel, confusing, and punitive payment structure on working families, regulators should focus on fostering competition, innovation, and access.
The CFPB’s small-dollar lending rule is a relic of a different era. It is based on flawed assumptions and is now disconnected from financial reality. It should be paused immediately and subjected to a long-overdue comprehensive economic review.
Because what’s at stake here isn’t just regulatory consistency. It’s whether millions of hardworking Americans will continue to have access to the financial tools they rely on to build stable, resilient lives.
