CFPB Payday Rule Will Go Live Next Year, Judge Says

By Evan Weinberger

The Consumer Financial Protection Bureau’s payday lending regulations will take effect next year despite a request from the bureau and industry groups to delay its effective date while the rule is reworked.

Judge Lee Yeakel of the U.S. District Court for the Western District of Texas on June 12 rejected a request from the CFPB, the Community Financial Services Association of America, and the Community Service Alliance of Texas to stay the effective date until 445 days after a new version of the rule is completed.

Yeakel also said the CFPB would not have to respond to the payday lenders’ complaint against the agency because it is working to revise the regulation, which will require companies in the short-term, high-interest loan market to determine borrowers’ ability to repay the cash advances and put restrictions on repeat borrowing, among other things.

The payday lending groups sued the CFPB on April 10 on grounds that the agency violated the Administrative Procedure Act when crafting the rule. The regulation was finalized in October under former CFPB Director Richard Cordray and is set to take effect Aug. 19, 2019.

Win For Consumer Groups

Acting CFPB Director Mick Mulvaney, an opponent of the payday lending rule, took over from Cordray last November. He announced plans soon after to reconsider the rule.

The CFPB and the payday industry groups filed a joint motion May 31 to stay both the regulation and the litigation filed in April. A proposal to rewrite or repeal the existing payday rule would be introduced in February 2019, according to the motion.

Those changes could take several months, if not years, to complete. A 445-day stay in the rule’s Aug. 19, 2019, effective date was necessary to give lenders the chance to prepare for a new regulation, the bureau and the payday lending industry groups said in their May 31 filing.

Yeakel rejected that argument, giving a win to consumer groups that support federal requirements for payday lending.

“Mick Mulvaney and the payday lenders tried an end-run around the law, and it was rightly rejected. Today’s ruling is a win for consumers,” Will Corbett, litigation counsel at the Center for Responsible Lending, said in a statement.

CFSA Chief Executive Dennis Shaul said in a statement emailed to Bloomberg Law on June 13 that his group would continue to “pursue a legal remedy” even as it works with the CFPB to rework the rule.

“Our lawsuit highlights the serious flaws embedded in the Bureau’s small-dollar rule and the rulemaking process that produced it,” Shaul’s statement said.

The CFPB could not be reached for comment June 13.

Tough Spot

Yeakel’s ruling puts the CFPB and payday lenders in a tough spot, according to Alan Kaplinsky, the co-leader of Ballard Spahr LLP’s consumer financial services group.

Not having the stay means that payday lenders, as well as auto title and other lenders, will have to prepare for the rule to take effect next year even as the CFPB rewrites it, Kaplinsky told Bloomberg Law in a phone interview.

Mulvaney will now have to speed up the regulatory process, perhaps proposing an extension in the compliance date in the next few months, he said.

“I think they can get the date extended, but the problem is that the industry now is living with a lot of uncertainty,” Kaplinsky said.

Kaplinsky put the blame at Mulvaney’s feet.

The acting CFPB director should have been more aggressive in pushing for changes to the payday lending rule rather than fighting some other battles such as calling the agency the Bureau of Consumer Financial Protection, Kaplinsky said.

The CFPB gambled that litigation would eliminate the payday lending rule, and lost, he said.

“It doesn’t look like they did anything,” Kaplinsky said.

The Community Financial Services Association of America and the Community Service Alliance of Texas are represented by Jones Day LLP

The case is Community Financial Services Association of America v. CFPB , W.D. Tex., No. 18-cv-295, order 6/12/18 .

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

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