Payday Lenders Say CFPB Loan Rules Are Illegal

Trade groups representing payday lenders are pressing a Texas federal judge to void the CFPB’s controversial payday loan rule.

The Consumer Financial Services Association of America and a Texas trade group contended that since the U.S. Supreme Court declared the original structure of the CFPB unconstitutional, the rule should be thrown out as well.

The CFSA filed suit 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 provide a financial lifeline for millions of consumers who need access to funds and choose these products over other available forms of credit,” the CFSA and its Texas state affiliate said in a recent filing in Texas federal court. “Currently, approximately 12 million Americans per year rely on payday loans to help with their financial needs, and millions more rely on installment lending.”

The payday rule has had a complex past. In 2017, under former Director Richard Cordray, the agency issued a strict payday lending rule that the payday loan industry said would decimate their businesses.

When President Trump took office, former CFPB Acting Director Mick Mulvaney and current Director Kathleen Kraninger said they intended to reevaluate the payday rule.

And the two sides in the lawsuit agreed to a stay in the payday lending lawsuit until the broader question of the agency’s constitutionality could be addressed.

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

In July, Kraninger issued a final, revised payday loan rule. The final rule removed provisions requiring that a lender verify that a borrower had the ability to repay a loan before the loan is approved.

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

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

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

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

They also said that the remaining part of the rule also exceeded the agency’s authority. The trade groups asked Yeakel to order that a new rulemaking process be initiated, including a period for public comment.

Credit union trade groups also have been critical of the CFPB rule, contending that credit unions should be exempt from it or that any loan patterned after the NCUA’s Payday Alternative Loan model be exempt.