The CFPB’s Arbitrary Attacks On Payday Loans


Consumer Financial Protection Bureau Director Rohit Chopra appears before a senate committee in Washington, Oct. 28, 2021.

PHOTO: ROD LAMKEY/ZUMA PRESS

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The new director of the Consumer Financial Protection Bureau, Rohit Chopra, has started rattling his interventionist saber only two months after his Senate confirmation. From pushing the Federal Deposit Insurance Corp. to block bank mergers to attacking bank overdraft fees, Mr. Chopra is moving aggressively. If the CFPB’s inquiries into “Buy Now Pay Later” credit and pawn loans are a leading indicator, it seems only a matter of time before Mr. Chopra revisits the perpetual progressive irritant—payday loans.

A study we recently completed questions the wisdom and legality of the CFPB’s last attempt to regulate payday loans, a rule from 2017. This rule provides the template for efforts to regulate payday loans out of existence. That massive rule limited payday-loan customers to no more than six loans a year unless they could meet a rigid government-mandated ability-to-repay standard.

Our results show that the CFPB’s approach to payday loan regulation is ill-conceived and needs adjustment. We found that the CFPB’s focus on the allowable number of payday loans isn’t a reasonable consumer protection policy.

We examined data from 2013 on 15.6 million payday loans, made to 1.8 million unique borrowers, to determine whether the number of loans a consumer takes in a year is a meaningful assessment of consumer welfare. We examined payday-loan terms and use and estimated the effects on consumers if they were prohibited from taking more than six loans in a year. We focused on the interaction of this limitation with two common ways states regulate payday loans: limits on allowable loan fees and on loan amounts.