2024 Year in Review: Payday and Small-Dollar Lending

Looking Ahead to 2025

We expect the level of enforcement and regulatory activity in the payday and short-term small-dollar loan space to decrease in 2025, at least at the federal level. The Consumer Financial Protection Bureau (CFPB) was particularly active in this space under the leadership of former Director Rohit Chopra, including announcing interpretive rules and filing lawsuits related to companies and industries that offer alternatives to traditional payday and title loan products. Even if such scrutiny subsides, as it did during the first Trump administration, we expect more liberal-leaning states — such as California, New York, and Massachusetts — to keep the payday and short-term small-dollar loan industry in their crosshairs.  

Key Trends From 2024 

In 2024, Goodwin monitored 15 enforcement actions related to payday or short-term small-dollar loans, an increase from the seven such actions that Goodwin monitored in 2023. The total recoveries in connection with such actions also increased year over year, from $41.8 million in 2023 to $63 million in 2024.

In the News 

CFPB Issues Interpretive Rule Identifying “Buy Now, Pay Later” Lenders as “Card Issuers” Under Regulation Z  

In May, the CFPB issued an interpretive rule identifying “Buy Now, Pay Later” (BNPL) lenders (i.e., lenders that permit consumers to split purchases across multiple payments and can require as little as a 25% down payment) as “creditors” or “card issuers” for purposes of Regulation Z, Subsection B. This requires such lenders to comply with the consumer protection provisions set forth in Regulation Z. The CFPB increased its focus on BNPL lenders beginning in 2021 after use of their products significantly increased. According to the CFPB’s 2023 Making Ends Meet survey, 17% of consumers with a credit record used BNPL for at least one purchase between February 2021 and February 2022. Since 2021, the use of BNPL products has only continued to increase, leading the bureau to conclude that these products are essentially a digital replacement for “conventional credit cards.” In response to this interpretive rule, the Financial Technology Association (FTA) filed a lawsuit against the CFPB in October, alleging, among other things, that the CFPB exceeded its statutory authority. The CFPB answered the complaint in December 2024, denying the FTA’s allegations. The case remains pending.  

CFPB’s 2017 “Two Strikes and You’re Out” Rule to Take Effect in March  

In June, the CFPB announced that a regulation it promulgated back in 2017 is now set to take effect in March 2025. This “new protection” benefits payday loan borrowers. The CFPB stated that the regulation, which adopts a rule known as the “two strikes and you’re out” rule, was prompted by the practice of lenders repeatedly attempting to withdraw money from consumers’ accounts even when it was clear those accounts were empty. The consumer would then be charged a fee for each such failed attempt or, in some instances, the consumer’s account would be closed. The “two strikes and you’re out” rule prohibits lenders from trying more than twice to withdraw money from a consumer’s account. If the two attempts are unsuccessful, lenders would be permitted to make additional attempts to withdraw only if the consumer specifically authorized it. Due to lengthy litigation, the rule has yet to take effect. That litigation, though, has since been resolved in the CFPB’s favor, and the rule is now set to take effect in March 2025.  

2024 Enforcement Highlights 

FTC Reaches Settlement With Online Cash Advance Provider  

In January 2024, the Federal Trade Commission (FTC) announced its settlement with an online cash advance provider, FloatMe Corp., and its co-founders, resolving claims that the company violated the FTC Act, Restore Online Shoppers’ Confidence Act, and Equal Credit Opportunity Act (ECOA) by engaging in allegedly deceptive marketing tactics and discriminatory practices. The FTC’s complaint alleged that the company charged consumers a monthly membership fee and promised consumers that they could instantly receive $50 cash advances but instead allowed consumers to receive only $20 advances when they signed up and charged extra fees for instant receipt of the cash advance. The FTC also alleged that the company made it difficult for consumers to cancel their subscriptions. This, the FTC alleged, resulted in the cancellation process being “manual-only, delay-filled, and error-ridden.” The FTC further alleged that FloatMe Corp. discriminated against consumers who received public assistance such as Social Security, military, and unemployment benefits by declining advances to consumers whose income came from such public assistance sources, despite still charging the consumers the monthly fee. Under the settlement agreement, the company agreed to pay $3 million to the FTC and to various injunctive relief, including providing an easier method for cancellation and enacting a fair lending program.

CFPB Sues Peer-to-Peer Emergency Credit Platform for Alleged Violations of CFPA and FCRA  

In May, the CFPB announced that it had filed a lawsuit against SoLo Funds Inc. in the U.S. District Court for the Central District of California over alleged violations of §§ 1031, 1036(a), 1054, and 1055 of the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5531, and 5536(a), 5564, 5565, and Section 607(b) of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681e(b). SoLo provides a platform through which consumers can request and obtain emergency small-dollar short-term loans from other consumers. The complaint alleges that SoLo promoted no-interest and no-cost loans but that virtually all loans on the platform required paying a “lender tip fee” and/or a “donation fee.” The CFPB also claims that the company serviced and collected on loans that were void and uncollectible under multiple state laws because the loans were made and/or brokered by an unlicensed individual or entity and/or the loans exceeded state usury limitations. Because of this, the CFPB claims that the company “deceptively, unfairly, and abusively represented that these loan amounts were due and attempted to collect and collected on those loans.” Furthermore, the CFPB alleges that the company misrepresented that missed payments would be reported to the credit bureaus as derogatory marks and would negatively affect the consumer’s credit score when the company never reported derogatory information to credit bureaus. The court denied SoLo’s motion to dismiss the CFPB’s complaint, and the case remains pending.  

Massachusetts Attorney General Enters Into Assurance of Discontinuance With California Finance Company  

In May, the Massachusetts attorney general announced that it entered into an Assurance of Discontinuance (AOD) with EasyPay, a California-based financing company, resolving allegations that the company had violated the Massachusetts Consumer Protection Act. The attorney general alleged that the company engaged in a “rent-a-bank” scheme, whereby the company partnered with an out-of-state bank in an attempt to circumvent Massachusetts’ maximum loan interest rates of 20%. Although the out-of-state bank retained title to these loans, the attorney general alleged that EasyPay is actually the “true lender” of these loans because the company had a 90% participation interest in the loans, took on the risk of nonperformance on the loans, provided the marketing and customer service for the loans, and provided the underwriting model for the loans. The attorney general further alleged that, since 2018, the average annual percentage rate of the loans was more than 100%. The AOD provides that EasyPay will cease making, facilitating, or servicing loans in Massachusetts and will cease collection on all active and defaulted loans in Massachusetts. The company also agreed to pay $625,000 in restitution to Massachusetts consumers.  

California Department of Financial Protection and Innovation Revokes Company’s License for Failing to Provide Information During Regulatory Exam

In July, the California Department of Financial Protection and Innovation (DFPI) issued an order revoking the California Financing Law license of Synapse Credit LLC, a company that had offered both individual and business loans in the state, following that company’s alleged failure to provide information during the DFPI’s attempt to conduct a regulatory examination. In June, the DFPI commenced a regulatory examination of the company and requested copies of the company’s books, records, reports, and other corporate data. According to the DFPI, the company provided no documents, and the DFPI was thus unable to conduct the regulatory examination and confirm that the company was complying with California law.  

CFPB and “Rent-to-Own” Company Exchange Lawsuits in a Race to the Courthouse 

In July, Acima Digital LLC and Acima Holdings LLC (together, Acima) — a virtual “rent-to-own” company — sued the CFPB in the U.S. District Court for the Eastern District of Texas, seeking declaratory and injunctive relief. Days later, the CFPB announced the filing of a complaint against Acima in the U.S. District Court for the District of Utah related to its “virtual rent-to-own” products. The complaint alleges that the defendants used “misleading” marketing and “abusive” enrollment practices that target consumers with poor or limited credit, locking them into costly “financings” of household goods disguised as lease transactions. The complaint further alleges that Acima reported inaccurate information about such “financings” to consumer reporting agencies and that these lending activities have been connected to as many as five million consumer financing agreements since 2015. According to the CFPB, this alleged conduct violated the CFPA, the Electronic Fund Transfer Act (EFTA), Regulation E, the Truth in Lending Act (TILA), Regulation Z, and Regulation V. The CFPB further alleges that the company’s former CEO provided substantial assistance to Acima in violating the CFPA.  

Court Dismisses CFPB Lawsuit Against Separate “Rent-to-Own” Company; CFPB Then Files Amended Complaint

In a separate litigation matter involving Snap Finance — another “rent-to-own” company — the U.S. District Court for the District of Utah granted Snap Finance’s motion to dismiss the CFPB’s complaint, holding that Snap Finance’s leases were not extensions of credit under the CFPA, TILA, or EFTA, and, therefore, the CFPB lacked jurisdiction to bring a claim for alleged violations of those laws. The dismissal was without prejudice. The CFPB thereafter amended its complaint. Snap Finance’s motion to dismiss the CFPB’s amended complaint remains pending.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.