Texas Payday Loan Industry Group Requests Injunction Against Payday Lending Rule

Inside Subprime: Sept 18, 2018

By Lindsay Frankel

A major payday loan industry group has filed a motion for preliminary injunction in Texas that would prevent the Consumer Financial Protection Bureau (CFPB) from enforcing the Obama-era payday lending rule scheduled to go into effect next year. This comes after an unsuccessful attempt to stay the rule. In June, U.S. District Judge Lee Yeakel denied the trade group’s request to delay the compliance date of the rule.

The Community Financial Services Association of America (CFSA) contends that the payday lending rule will cause irreparable damage to its members’ businesses. The group brought a lawsuit against the CFPB in April, and Trump-appointed Acting Director Mick Mulvaney supported the suit and promised to revisit the rules. The agency is expected to make changes that would loosen restrictions on payday lenders or repeal the rule altogether. The CFSA has said that if the rule goes into effect, it would prevent more than 9 out of 10 payday loans currently being issued.

“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. The CFSA added that the rule is estimated to destroy the industry by making payday lending unprofitable for businesses. This would “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,” according to the association.

The payday lending rule would cap interest rates and ensure that lenders verify a borrower’s ability to repay the loan, among other consumer protections. And while trade groups argue that consumers understand payday loans and should make their own financial decisions, consumer advocates argue that payday lenders target financially illiterate, vulnerable people in underserved communities.

But in the injunction motion, trade groups contend that their lawsuit is likely to succeed because the CFPB is structured unconstitutionally and several practices prohibited by the rule do not meet the Consumer Finance Protection Agency’s standards for “abusive” or “unfair” practices.

Though the CFPB rule is not scheduled to go into effect until August of 2019, many payday lenders are already modifying their loan practices or closing down shop entirely in anticipation of the new regulations. The CFSA called the rule an “unprecedented assault on payday lending.”

One payday lender said the rule would be a “death blow” to her business, which operates three payday loan storefronts in Kentucky. She said she has already asked 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.”

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