The Consumer Financial Protection Bureau (CFPB) has filed a response supporting reconsideration of the agency’s payday rule. According to The National Law Review, the motion requested that a Texas federal court reconsider its June 12 order that the effective date of the rules not be delayed.
Last October, former CFPB head Richard Cordray finalized the rule that would require lenders to conduct background checks showing that borrowers can afford the loans, and to limit the number of loans made to a single borrower. The rule, set to go into effect in August 2019, has received pushback from payday lenders, which argue that it prohibits them from issuing almost all of the loans they currently grant to consumers.
Payday and short-term lending is an approximately $6 billion-a-year industry, one that both critics and supporters of payday lending agree will take a major hit if the rules went through. With that in mind, Acting Director Mick Mulvaney revealed in January that he would “reconsider” rules regarding the industry. Then, in April, the payday lending trade group Community Financial Services Association of America (CFSA) filed a lawsuit against the CFPB to stop the regulation, saying it will kill the industry.
“We do not take lightly that we are suing our federal regulator. However, we have long said we are pursuing all options with regard to the CFPB’s harmful small-dollar lending rule, and one of these options was litigation,” said Dennis Shaul, chief executive of the CFSA.
The CFPB joined the group in asking that the lawsuit, as well as the payday rules, be put on hold until the CFPB changed them. The CFPB estimated it will issue new proposed rules in February 2019, according to Credit Union Times. In this latest court filing, the agency said the process used to create the rule was flawed.
“The rulemaking record did not provide substantial evidence for several findings underpinning critical elements of the rule and that, to that extent, the rule is therefore arbitrary and capricious,” the CFPB said.