Payday and Small-Dollar Lending

Looking Ahead to 2026

In 2025, the Consumer Financial Protection Bureau (CFPB) reduced its scrutiny of small-dollar lenders by publicly announcing that it “will not prioritize enforcement or supervision actions” on its small-dollar lending rule, which took effect in March, and signaling that it may narrow the rule via rulemaking. This hands-off approach marked a stark reversal from the CFPB’s 2017–2023 policy cycle, in which small-dollar lending was a central focus of supervision and enforcement.

State attorneys general and banking regulators, however, continued to be active in 2025 and coordinated enforcement and legislative efforts on small-dollar lending and debt collection practices. Based on this trend, we expect state and local enforcement on disclosure failures, unfair and deceptive acts, and state usury statutes will increase, even if the CFPB continues to take a step back in 2026.

Key Trends From 2025

In 2025, Goodwin monitored five enforcement actions related to payday or short-term small-dollar loans — one federal enforcement action and four state enforcement actions. This represents a significant decrease from the 15 such actions Goodwin monitored in 2024. The total recoveries, however, increased significantly, from $63 million in 2024 to $1.085 billion in 2025 — largely attributable to a New York enforcement action against a small business lender valued at more than $1 billion.

In the News

CFPB Shifts Focus From Small Business Lending

In March 2025, the CFPB issued a statement announcing that it would not prioritize enforcement or supervision actions related to certain penalty- and fine-related provisions of its Payday, Vehicle Title, and Certain High-Cost Installment Loans Regulation (the Payday Lending Rule). The regulation, which the CFPB first promulgated in 2017, adopted what is colloquially known as the “two strikes and you’re out” rule designed to curtail the practice of lenders repeatedly attempting to withdraw money from consumers’ accounts even when it was clear those accounts had insufficient funds. Consumers would be charged a fee for each failed attempt or, in some instances, have their accounts closed entirely. The “two strikes and you’re out” rule prohibits lenders from attempting to withdraw money more than twice from a consumer’s account. After two unsuccessful attempts, lenders would be permitted to make additional attempts to withdraw only if the consumer specifically authorized it. The rule further exempts certain banks and other depository institutions that originate 2,500 or fewer small-dollar loans each year provided these loans account for less than 10% of their revenue. At the time of its announcement noting its deprioritization of the Payday Lending Rule, the CFPB further announced that it would focus its enforcement and supervision resources on service members and veterans and noted that it was actively contemplating issuing a notice of proposed rulemaking to narrow the scope of the rule. The CFPB has not yet announced such a proposed rulemaking.

CFPB Announces It Will Deprioritize Actions Related to BPNL Loans

In May 2025, the CFPB announced that it will no longer prioritize enforcement actions applying Regulation Z to buy now, pay later (BNPL) products. Also in May, the CFPB withdrew the BNPL interpretative rule, issued in May 2024, which characterized certain BNPL providers as “card issuers,” subjecting them to many of Regulation Z’s open-end credit provisions. In a June 2025 status report filed by the CFPB in Financial Technology Association v. CFPB et al, in which a fintech trade group sought to block the BNPL interpretative rule, the CFPB stated that it does not intend to issue a revised rule for several reasons, including because open-end credit regulations are “ill-fitt[ed]” to BNPL products.

State AGs Launch Inquiry Into BPNL Providers

In December 2025, a multistate coalition of seven state attorneys (AGs) general launched a probe on terms and fees set by BNPL providers. Led by Connecticut Attorney General William Tong and North Carolina Attorney General Jeff Jackson, the coalition sent letters to the six largest BNPL companies demanding information about “pricing and repayment structures, consumer contracts, user agreements, and disclosures. The inquiry aims to determine” whether the “companies are complying with consumer protection laws” in California, Connecticut, Colorado, Illinois, Minnesota, North Carolina, and Wisconsin and whether their products are exposing consumers to unclear terms, hidden fees, and debt traps. This action follows the CFPB’s recission of and decision not to reissue the BNPL interpretive rule that expanded Truth in Lending Act (TILA) coverage to BNPL companies.

Federal and State Approaches to Earned Wage Access

At the end of 2025, the CFPB took steps to reduce long-standing uncertainty concerning the treatment of earned wage access (EWA) products under federal consumer credit law. In December, the CFPB issued an advisory opinion clarifying that certain employer-facilitated EWA products — those allowing workers to access wages already earned, relying on payroll deductions, and imposing no recourse or credit risk — are not “credit” under the TILA and Regulation Z. This guidance draws an important regulatory distinction between wage access and consumer credit, easing compliance concerns for many providers and employers heading into 2026.

However, although it provided clarification, the CFPB made clear that not all EWA products fall outside the scope of credit regulation — only ones that meet certain specific criteria. Based on the advisory opinion, EWA products could fall outside the “Covered EWA” safe harbor and may be subject to TILA and/or Regulation Z if (i) the provider advances an amount that may or may not be fully documented by payroll data (e.g., based on the worker’s estimate of hours worked); (ii) repayment does not occur solely through payroll deduction but instead occurs when the provider automatically debits the worker’s bank account after payday; or (iii) the arrangement could create a debt obligation because repayment is not tied strictly to a passive payroll process and could require collection activity if funds are insufficient. The advisory opinion leaves open further evaluation of other EWA models and legal frameworks beyond Regulation Z, signaling that federal oversight may continue to evolve through additional guidance, enforcement activity, or potential rulemaking as new product structures emerge.

Meanwhile, states continue to craft or enforce their own approaches to EWA regulation, including some states like Maryland, Arkansas, Missouri, and Nevada, which have classified certain EWA arrangements as loans, triggering licensing and consumer protection requirements.

2025 Enforcement Highlights

New York AG Enters Into $1 Billion Consent Order With Small Business Lender

In January 2025, the New York AG announced that the state had settled its claims against a network of 25 predatory lending companies controlled by Yellowstone Capital, a financial company offering short-term loans to small businesses, and several of its officers. According to the 2024 complaint, Yellowstone allegedly engaged in unfair and deceptive lending practices in violation of New York’s general consumer protection laws, criminal usury statute, and lender licensing laws. The New York AG accused Yellowstone of marketing its loans as merchant cash advances to be repaid via a share of its revenue but in reality treating them as short-term loans and deducting daily payments from customers’ bank accounts that were fixed in value and had no relation to customers’ revenue.

Under the terms of the consent order, Yellowstone will cease operating its merchant cash advance business and cancel all of the loans it currently holds, valued at more than $534 million. It will also pay $3.4 million in monetary relief to former customers and a judgment payment to the state of $1.065 billion, although the value of the canceled debts will be credited against this judgment. The two individual officers also agreed to pay an additional $12.7 million to the New York AG.

FTC Reaches Settlement With Online Cash Advance Company

In March 2025, the Federal Trade Commission (FTC) announced that an online cash advance company had agreed to pay $17 million to resolve allegations that it deceived consumers regarding the amount of money they could receive and the speed at which they would receive it. According to the FTC’s complaint, the company deceived consumers regarding the advertised amounts and timing of its “instant or same-day cash advances.” The FTC also alleged that the company “prevented consumers with an outstanding cash advance balance from canceling their subscription[s] […] forcing consumers to pay additional monthly fees.” Under the terms of the agreement, in addition to agreeing to pay $17 million to the FTC, the company agreed to disclose the terms of the subscription and any required fees before consumers enroll.

New York Sues Two Companies for Alleged Usurious Payday Loans

In April 2025, the New York AG filed lawsuits against two EWA service companies. These companies allegedly offered short-term small-dollar loans and charged annualized percentage rates of between 350% and 750%.

In both cases, the AG is seeking a permanent injunction against the companies, as well as restitution and damages to the consumers, disgorgement of all profits, civil money penalties under federal law, and a civil penalty under state law of $5,000 for each alleged predatory loan. Notably, one of the companies had, just weeks before, filed a complaint against the state of New York asking for declaratory judgment that its advances were not loans or predatory transactions.

New Jersey Issues Finding of Probable Cause for Discrimination on Part of Cash Advance Business

In March 2025, the New Jersey AG and the Division on Civil Rights (DCR) announced that the DCR had issued a finding of probable cause for violation of the New Jersey Law Against Discrimination against Advanced Funding Partners, a “business that provides cash advances and loans to borrowers.” The DCR found that the business had “a policy of refusing to lend to prospective clients based on race, national origin, and nationality,” specifically finding that staff were instructed “not to do business with ‘Chinese, African, and Spanish’” borrowers. The finding of probable cause also noted that the business unlawfully retaliated against an employee who reported the discrimination to the DCR, subjecting them to threats and harassment.

City of Baltimore Files Suit Against EWA Provider

There was also a notable city enforcement action in 2025. In October, the City of Baltimore announced that it had filed suit against what it claims “is a modern payday lender.” The city accuses the company of “misleading marketing and usurious interest charges that trap some of the City’s most financially precarious residents in an exploitative cycle of debt.” The city claims that the company markets zero-interest loans, but in reality the consumer is forced to pay fees and “tips” that can accrue to total more than the maximum annual percentage rate allowed under Maryland law. The city seeks “the maximum amount of statutory penalties” and injunctive relief requiring the company to cease the behaviors identified in the complaint.

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Read the next chapter, “Credit Reporting.”