Payday Lenders Ask for Injunction to Delay Payday Lending Rule

A group representing payday lenders is asking a federal judge in Texas to issue a preliminary injunction prohibiting the CFPB from enforcing its controversial short-term lending rule.

The Community Financial Services Association of America contends that even though the CFPB rule does not go into effect until August 2019, its members must prepare now for the new rule.

The group filed suit in April challenging the agency’s rule, which was issued by former agency Director Richard Cordray, an Obama Administration appointee. The agency, now run by Trump Administration Acting Director Mick Mulvaney sided with the association, saying that the CFPB is revisiting the rules. The agency is widely expected to repeal or significantly weaken the rule.

At the same time, the NCUA is examining a proposed rule that officials said will encourage more credit unions to begin lending under the agency’s Payday Alternative Loan program

Earlier this year, the payday lending association was unable to convince U.S. District Judge Lee Yeakel of the Western District of Texas to stay the rule from going into effect.

However, the association is now asking for an injunction, saying its members will be irreparably harmed by it.

“This Court should preliminarily enjoin the CFPB’s paternalistic final rule, which improperly seeks to ‘protect’ consumers from their own voluntary and informed financial decisions,” the association said. It said that the CFPB rule will prohibit more than 90% of the payday loans now being made.

In requesting the injunction, the payday lenders group argued that the bureau’s “unprecedented assault on payday lending” is based on a flawed statutory interpretation.

“By any estimate, the Final Rule will dramatically reduce the supply of credit by prohibiting most of the payday loans that are currently made,” the association said. “This in turn will make payday lending so unprofitable that it will virtually eliminate the entire payday-loan industry, killing off hundreds of small businesses, eliminating thousands of jobs, and denying access to the crucial financial flexibility that millions of payday borrowers rely on, including those who the Bureau concedes benefit from payday loans.”

Some payday lenders already are closing stores or changing loan practices in anticipation of the rule, the association said.

And it attached affidavits from payday lenders in support of the request for an injunction.

For instance, Judi Strong, owner of Cash In A Dash, which operates three payday lending stores in Eastern Kentucky said the rule will be a “death blow” to her business.

She said that in anticipation of the rule going into effect, she has directed her employees to be “very conservative in making loans to new people and to people who do not have a good record of paying back their loans.”