A federal court dealt a blow to efforts by the Consumer Financial Protection Bureau to slow down the agency's payday lending rule.

U.S. District Judge Lee Yeakel on Tuesday denied the request by acting CFPB Director Mick Mulvaney that the court delay the payday rule's effective date, which is set for next year.

Mulvaney had sided with two industry trade groups — the Community Financial Services Association of America and Consumer Service Alliance of Texas — that sued the CFPB in April to invalidate the tough restrictions on small-dollar loan providers. The rule was written under former CFPB Director Richard Cordray.

Mick Mulvaney, acting director of the Consumer Financial Protection Bureau.
Acting CFPB Director Mick Mulvaney had sided with two industry trade groups that sued the CFPB in April to invalidate the tough restrictions. Bloomberg News

The CFPB in January said it plans to reopen the payday lending rule, which goes into effect Aug. 19, 2019.

The CFPB's request was another illustration of the sea change at the agency since Cordray stepped down in November. Mulvaney also has dropped several investigations into installment lenders including World Acceptance Corp., based in Greenville, S.C., which had a political action committee that made campaign contributions to Mulvaney when he was a lawmaker.

The small-dollar rule, which was finalized in October under Cordray, requires lenders to determine a borrower's ability to repay a short-term loan of 45 days or less.

"This is not a good development for the industry," Alan Kaplinsky, co-practice leader of Ballard Spahr's Consumer Financial Services Group, said of the ruling.

Consumer advocates hailed the ruling, noting that the CFPB had conducted more than five years of research, analysis and public outreach in developing a rule to keep payday lenders from trapping consumers in a cycle of debt.

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

Several consumer and civil rights organizations called on the agency to implement the rule as planned to protect consumers from predatory lenders.

“The consumer bureau, under the direction of Mick Mulvaney, should never have made this transparent attempt to destroy an important consumer protection around payday lending," four consumer groups — Public Citizen, the Center for Responsible Lending, the National Consumer Law Center, and Americans for Financial Reform Education Fund — said in a joint statement. "We’re heartened that a federal judge rejected Mulvaney’s attempt, in partnership with predatory payday lenders, to evade the requirements of the Administrative Procedure Act."

Mulvaney and the two payday lending trade groups had filed a "joint motion for stay of litigation" and a "stay of agency action pending review."

"Requests presented by the parties' Joint Motion for Stay of Litigation and Stay of Agency Action Pending Review filed May 31, 2018 are denied," the judge wrote.

The CFPB did not immediately return a request for comment.