CFPB Payday Rule Likely to Survive Congress, But Threats Remain

By Evan Weinberger

The Consumer Financial Protection Bureau’s rule limiting payday loans and other forms of short-term, high-interest credit is expected to survive a brush with congressional repeal efforts even as the regulation’s long-term future faces other threats.

Sen. Lindsey Graham (R-S.C.) introduced S.J. Res. 56, a resolution to overturn the CFPB’s payday lending rule using the Congressional Review Act on March 22. That resolution, which followed the introduction of a similar measure in the House on Dec. 1, would require the support of a simple majority of senators to set up the rule’s repeal.

Graham’s CRA measure appears to be on life support. Despite opposition among many Republican senators to the CFPB’s payday lending rule, there is limited time to get the measure on the Senate floor and a lot of other business competing for attention.

“There is practically no chance of a CRA override,” Alan Kaplinksy, the co-leader of Ballard Spahr’s Consumer Financial Services Group, said in a May 3 email to Bloomberg Law.

Although congressional efforts for a quick strike against the payday lending rule appear to have ground to a halt, new leadership at the CFPB that is hostile to the regulation has begun the process of rewriting or eliminating it. An industry lawsuit challenging the regulation also poses a threat.

Former CFPB Director Richard Cordray announced the payday lending rule Oct. 5. It would require payday lenders to determine whether consumers could afford the short-term, high-interest loans they take out and the frequency those loans can be issued to customers, among a host of other changes.

It is set to take effect in the summer of 2019.

Senate Repeal Effort Wobbling

Congress has 60 session days to move forward with a disapproval resolution once a regulation is reported, The Congressional Review Act states. Although the payday lending rule was reported to the Senate in November, the clock reset when the new Senate session opened Jan. 3.

Using that timeline, an analysis by Ballard Spahr found that the Senate has until around May 17 to vote on Graham’s disapproval resolution. That is unlikely, Kaplinsky said.

Graham’s CRA resolution has no co-sponsors, and the Senate’s calendar is packed with judicial nominations and other pending business, including a confirmation vote for Jelena McWilliams, President Donald Trump’s choice to lead the Federal Deposit Insurance Corp., when it returns from recess May 7.

Net Neutrality Block?

There is one other CRA wrinkle that could prevent the Senate from moving forward with a CRA vote on the payday lending rule.

Democrats have been pushing for a CRA measure to invalidate the Federal Communications Commission’s repeal of net neutrality regulations that the Obama administration put in place.

Polls from late last year showed significant public opposition to repealing the net neutrality rules, which would have forced internet service providers to allow all content to move freely and without favoring or blocking any websites or information.

That could make the politics of moving a payday loan CRA even tougher, Amit Narang, the regulatory policy advocate at Public Citizen, told Bloomberg Law on May 2.

“I do think it’s dead,” Narang said of Graham’s effort to repeal the payday rule. “The net neutrality CRA will hit the floor in next couple weeks and I don’t think that makes the already bad optics on the CRA any better,” he said in an email.

Kevin Bishop, a spokesman for Graham, told Bloomberg Law in an email that there was “nothing new to report at this time” on the payday lending resolution.

Representatives for Senate Majority Leader Mitch McConnell (R-Ky.) could not be reached for comment.

Other Avenues to Kill Payday Rule

Even if the CFPB’s payday lending rule escapes its brush with the Congressional Review Act, the rule’s future remains in doubt.

Acting CFPB Director Mick Mulvaney, who had previously asked for Congress to use the CRA to eliminate the payday lending rule, has said he will reopen the regulation for comments. To many observers, that may mean the rule will either be weakened or eliminated through the time-consuming regulatory process.

There is also litigation that could kill the rule quickly.

The Community Financial Services Association of America, a payday lending industry group, and a Texas-based industry association, sued the CFPB on April 9 in the U.S. District Court for the Western District of Texas alleging that the bureau’s rulemaking process violated the Administrative Procedure Act and should be overturned.

It is unclear how the CFPB will respond to the complaint, but the bureau has until June 11 to do so, according to the case docket.

“I am optimistic that either the litigation or a new regulation or a combination of both will do the trick,” Kaplinsky said.

The case is Community Financial Services Association of America v. CFPB , W.D. Tex., No. 18-cv-295, 4/9/18 .

To contact the reporter on this story: Evan Weinberger at eweinberger@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.