Payday Lenders, CFPB Agree to Restart Payday Rule Court Fight

By Evan Weinberger

Payday lenders moved to restart their battle over the Consumer Financial Protection Bureau’s first-ever federal rules for the market, asking a Texas judge to end a pause in the case and filing a preliminary injunction motion aimed at stopping the rule from taking effect.

According to a Sept. 14 motion filed in U.S. District Court for the Western District of Texas, the CFPB did not oppose the request by the Consumer Financial Services Association of America, a payday lending industry group, to lift a litigation stay imposed by Judge Lee Yaekel in June. That should allow the case to be reopened.

“To avoid the burdens of a rule that they allege to be unlawful, Plaintiffs have a right to timely, pre-enforcement judicial review of their claims,” the unopposed motion to lift the stay said.

The CFPB could not immediately be reached for comment on the payday lending industry group’s preliminary injunction motion.

Changes At The CFPB

The CFSA, along with the Consumer Service Alliance of Texas, sued to block the CFPB’s payday lending rule in April. The rule, which would require payday lenders to determine consumers’ ability to repay the short-term, small-dollar loans among a host of other requirements, relied on a flawed CFPB study and would cause many payday lenders to close their doors, the lawsuit said.

The payday lending rule was completed in October under former CFPB Director Richard Cordray. The bureau’s new temporary leader, Office of Management and Budget Director Mick Mulvaney, opposes the rule and in January said the CFPB would “reconsider” it.

The two sides in early June agreed to put a hold on the litigation and asked Yaekel to both stay the case and the rule. The rule is set to take effect in August 2019.

Yaekel on June 12 agreed to the litigation stay but not to put a hold on the rule’s effective date, saying that the CFPB had plenty of time to finish a new version of the payday lending rule before it takes effect.

The CFPB has said in court filings that it expects to issue a new payday lending proposal by the end of the year.

That lack of a stay has rankled payday lenders, who say that they will incur the costs of preparing to comply with a rule that may not ever take effect. That uncertainty could result in a wave of companies closing their doors, they say.

Lenders Couldn’t Wait

Payday lenders are also unhappy with the path that the CFPB is going down, with the CFSA’s CEO Dennis Shaul telling Bloomberg Law in July that the bureau should have proposed an implementation delay when it said it was reconsidering the rule.

Rather than wait for a new proposal, the CFSA and its Texas-based counterpart are now moving to kill the CFPB’s rule through litigation, something that had been on hold.

“Because the rule prohibits more than 90% of payday loans currently made, Plaintiffs’ members (who are in the business of making payday loans) will obviously be irreparably injured once the rule goes into effect in August 2019,” the groups’ preliminary injunction motion said.

The CFSA and Consumer Service Alliance of Texas are represented by Jones Day LLP.

Community Financial Services Association of America v. Consumer Financial Protection Bureau , W.D. Tex., 1: 18-cv-00295, motion 9/14/18 .

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

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

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