Payday lenders say CFPB lending rules are illegal

CFPB headquarters. (Source: Shutterstock)

Business groups representing payday lenders are lobbying a Texas federal judge to overturn the controversial CFPB payday loan rule.

The Consumer Financial Services Association of America and a Texas trade group argued that since the United States Supreme Court ruled the original CFPB structure unconstitutional, the rule should also be rejected.

The CFSA filed a complaint against the CFPB in April 2018, alleging that the rule was arbitrary and would harm consumers who need loans offered by their members.

“These and other consumer credit products offer a financial lifeline to millions of consumers who need access to funds and choose these products over other forms of credit available,” said the CFSA and its Texas state affiliate in a recent filing in Texas federal court. “Currently, about 12 million Americans a year depend on payday loans to meet their financial needs, and millions more depend on installment loans.”

The wage rule has had a complex history. In 2017, under the leadership of former director Richard Cordray, the agency released a tough payday loan rule that the payday lending industry said would decimate their businesses.

When President Trump took office, former acting CFPB director Mick Mulvaney and current director Kathleen Kraninger said they intended to reassess the payday rule.

And both parties to the lawsuit have agreed to stay the payday loan lawsuit until the larger question of the agency’s constitutionality can be addressed.

In June, the Supreme Court, in a separate case, ruled that the structure of the CFPB was unconstitutional since the director could only be removed for just cause. The ruling meant that the director could be removed by the president for any reason.

In July, Kraninger released a revised final rule on payday loans. The final rule removed provisions requiring a lender to verify that a borrower had the capacity to repay a loan before the loan was approved.

However, the rule retained parts of Cordray’s Rule that limited a lender’s ability to access a borrower’s bank account.

In an attempt to clarify the agency’s actions in light of the Supreme Court ruling, Kraninger released a statement ratifying the agency’s past actions.

That’s not enough, the CFSA said in a court filing in late September asking U.S. District Judge Lee Yeakel to overturn the agency’s rule.

“As a binding precedent makes clear, an invalid agency cannot take legal action,” the association said.

They also said the remaining part of the rule was also beyond the agency’s powers. Trade groups have asked Yeakel to order that a new rule-making process be launched, including a public comment period.

Credit union groups have also criticized the CFPB rule, saying credit unions should be exempt or that any loan modeled after the NCUA’s alternative payday loan model would be exempt.

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