Community Financial Services Association of America, the payday lending trade group, filed a lawsuit against the Consumer Financial Protection Bureau to stop a regulation put into place under the Obama administration that it claims will kill the industry.
The Washington Post, citing the lawsuit filed in U.S. District Court for the Western District of Texas, reported the group calls the rule “draconian” and says it will “virtually eliminate” the industry. The group said the rule was driven by a “deeply paternalistic view that consumers cannot be trusted with the freedom to make their own financial decisions.” The regulation would require payday lenders to verify borrowers can afford the loan before lending money. It also caps the number of times a person can take out a payday loan in a row. It has already faced opposition from House and Senate Republicans who have introduced their own bills to stop the rule from going forward. Meanwhile, President Donald Trump-appointed acting head of the CFPB Mick Mulvaney has said he is looking over the rule.
“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,” Dennis Shaul, chief executive of the Community Financial Services Association of America, the primary industry group for payday lenders, told The Washington Post in an interview. The report noted that it’s not clear if the CFPB will fight the lawsuit. According to the WP, while payday lending is a tiny portion of the financial industry — with around 12 million people taking out these types of loans each year — in states where it’s legal, the number of payday lenders is as plentiful as the number of McDonald’s or Starbucks, noted the paper. The lawsuit contends the loans provide a lifeline to millions of people who need access to money, but critics argue the loans trap people in a cycle of debt. The loans often have high-interest rates associated with them.