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Regulatory Checklist for Consumer Installment Loans

Regulatory Checklist for Consumer Installment Loans

July 15th, 2025

Introduction

Consumers commonly apply for installment loans to give them funds to make large purchases or pay off debt. Borrowers may choose a secured loan, to buy a car or other purchase, or an unsecured loan that does not require collateral. Financial regulations set limits on the ways lenders can market, process, manage, or report each loan, with primary enforcement going through the Consumer Financial Protection Bureau. This checklist helps businesses to determine how they should follow these financial regulations. 

Why Compliance Matters for Consumer Installment Loans

The CFPB issued 18 major actions against installment lenders in 2024 alone, per the National Consumer Law Center, indicating that regulatory scrutiny for a consumer installment loan is on the rise. A 2024 ruling by the U.S. Supreme Court, establishing that the CFPB could use funding as part of enforcement of consumer protection laws, provided the basis for an increase in oversight and attempts to enforce policies. Specifically, this trend led to higher scrutiny of violations of the laws against Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) in lending. 

These factors reflect changing dynamics in lending, particularly a diversification of the institutions holding small-dollar credit loans (typically less than $1,000). A new rule established in September 2024 created a registry for non-bank lenders who violate policy, making it easier for the government to discover violations and levy penalties or other actions. 

Key Federal Regulations Governing Consumer Installment Loans 

The federal government maintains a series of regulations governing the handling of consumer installment loans: 

  • Reg Z/TILA: The Truth-in-Lending Act sets guidelines for the types of information lenders must provide, so applicants can understand the loan terms before signing an agreement. 
  • Reg B/ECOA: The Equal Credit Opportunity Act prohibits lenders from discriminating against applicants based on their race, religion, sex, or other protected categories. The act also requires lenders to provide information regarding their decision to deny credit. 
  • FCRA: The Fair Credit Reporting Act sets requirements for the use of consumers’ credit information. An installment lender must provide accurate information to reporting agencies and investigate disputes in a timely manner. 
  • FDCPA: The Fair Debt Collection Practices Act sets limits on the ways that lenders or debt collectors can attempt to collect on a debt. Debt collectors cannot use abusive or dishonest practices while trying to persuade a debtor to pay. 
  • MLA: The Military Lending Act establishes special protections for active servicemembers, such as maximum interest rates on loans and no penalties on prepayments. 

On March 30, 2025, the CFPB introduced a new rule requiring installment loan and payday lenders to limit attempts to withdraw funds. If two attempts fail, the institution must wait for the borrower’s authorization to try again. Although the CFPB does not yet enforce this rule, the existence of these guidelines calls for lenders to maintain strict compliance. Regulatory compliance can help avoid fines, negative reputations, and other consequences. 

State-by-State APR Caps & Licensing Requirements

States set their own caps on lenders’ annual percentage rates, if they choose to use caps at all. The NCLC provides data on state caps for installment loan APR, where applicable*: 

  • CA: 45% at $500, 25% at $2,000, no cap at $10,000 
  • TX: 93% at $500, 35% at $2,000, 30% at $10,000 
  • FL: 48% at $500, 31% at $2,000, 24% at $10,000 
  • NY: 25% for $500, 25% at $2,000, 25% at $10,000 
  • PA: 27% for $500, 24% at $2,000, 26% at $10,000 

* Not legal advice; confirm with counsel. 

The range can be significant. North Carolina caps rates on $500 installment loans at 16%, while Mississippi limits rates at 305% and states like Utah or Delaware have no caps. The median rate caps on these loans ranges from 36.5% for $500 loans to $25% for a $10,000 loan. 

Additionally, most states require lenders to obtain an installment loan license, excepting Arkansas and Utah. While many states require a license for all lending, several call for licensing only when the loan meets certain thresholds. Given the unique requirements, lenders typically need a license to provide loans in each state where they offer lending services. 

Compliance in Underwriting & Decisioning 

During the underwriting and decisioning processes, lenders must make sure that they comply with local and federal regulations on fair engagement with applicants: 

  • Per the ECOA, lenders cannot use demographic data like age, marital status, race, or religion to approve a loan or determine which terms they offer. 
  • The FCRA limits lenders from using information contained in a credit report for applicants, outside the application process. It also requires lenders to notify applicants when they make an adverse action due to the consumer’s credit information, such as denying a loan due to credit score. 

Lenders that use AI in the underwriting process must maintain transparency in the process. For example, if they decide not to offer a loan based on complex algorithms, the information they provide to the applicant must be specific, indicating primary reasons for the decision. Bias testing can help to identify possible flaws in the system that lead to inadvertent violations of these guidelines. 

Servicing, Collections & Payment Withdrawal Rules 

Creditors must follow these regulations when attempting to collect on a debt or communicating with a debtor about existing debts. The CFPB’s limit on ACH withdrawals allows creditors to try an ACH payment twice. If both instances fail, the creditor must attempt to contact the debtor to obtain authorization. 

When creditors communicate with borrowers, they must follow the FDCPA. Specifically, they must abide by debtor’s requests in terms of communication method, time, and location. They cannot employ abusive tactics like name-calling, loud talking, or dishonest threats. The NCLC reported significant barriers that non-compliant servicers often create for borrowers, including 40-minute average hold times and an inability to access online payment portals. 

Data Privacy & Security Obligations 

Financial institutions should maintain safeguards for protecting consumer data. Guidelines regulating the management of financial information focus on the GLBA, which creates standards for institutions holding consumer financial information. The Association of International Certified Accountants created SOC 2 Type II reports to establish a detailed framework that service providers must follow to maintain compliance. Common security controls include: 

  • Process monitoring 
  • Encryption at rest or in transit 
  • Multi-factor user authentication 
  • Role-based access 
  • Audit logs 
  • Detection of intrusion 
  • Disaster recovery 

Institutions must also follow state-level data privacy requirements, including breach notification timelines. While many states do not enforce a timeline for these notifications, others set limits ranging from 15 to 90 days. In May 2025, the CFPB announced that it would rescind existing guidance that insufficient data protection is a violation of the CFPA. 

Penalties & Enforcement Trends 

The CFPB regularly resets amounts of fines or penalties that entities may face as a result of regulatory violations. As of 2025, common penalties include: 

  • $7,200 per day of each violation 
  • $36,000 per day for reckless violations 
  • $1.4 million per day for knowingly violating CFPB rules or laws 

Common fines levied on businesses range from thousands of dollars to several million in the past 24 months. In January 2025, the CFPB levied a penalty of $15 million against Equifax for failing to follow FCRA and selling inaccurate consumer credit scores. In the same month, the bureau ordered that Block, the company operating Cash App, pay up to $120 million in fines and restitution for failing to provide sufficient customer service and fraud prevention. Companies seeking to avoid similar violations should consider adopting compliance tech into their financial management processes. 

Technology & Automation for Compliance Management 

Manual compliance management is much more complicated and likely to result in errors, which highlights the benefit of automated lending platforms with embedded compliance controls. Recent examples show that integration of RegTech into financial institution processes can drop false reports of violations by 50% or more, with a reduction in costs of 30%. 

Loan management systems, such as Vergent LMS, provide convenient solutions to compliance needs. Vergent LMS’s iQ Decision Engine automates the process of lending decisions without compromising key compliance requirements. Real-time rule updates and audit-ready reports can streamline consumer loan management and simplify preparation of audit trails. 

Compliance FAQs on Consumer Installment Loans 

What’s the difference between consumer vs commercial installment loans? 

Consumer installment loans provide funds for consumers to use for various reasons, while commercial installment loans give funds to businesses. 

Can I lend in multiple states with one license? 

While the CFPB allows for states to offer reciprocity agreements with other states, lenders must confirm that they meet the laws for each state’s licensing agreements before offering loans in that location. 

How often do APR caps change? 

APR cap changes depend on state legislation and may happen as often as every few years. The NCLC noted that 12 states changed caps between 2018 and 2024. 

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