Payday lenders get unexpected reprieve from CFPB rule

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A federal judge delivered another victory to payday lenders by leaving in place a stay on the compliance date for the Consumer Financial Protection Bureau’s 2017 payday lending rule.

That rule, drafted under former CFPB Director Richard Cordray, had two key components: new underwriting requirements for high-cost, small-dollar lenders, and limits on how often a lender can attempt debiting payments from a borrower's bank account.

The CFPB under Trump-appointed Director Kathleen Kraninger already proposed eliminating the underwriting portion. But in a surprising development, U.S. District Judge Lee Yeakel's ruling that a stay of the Aug. 19 deadline will remain in effect means the payment provision will continue to be delayed as well.

Yeakel, who did not indicate when he would lift the stay, is presiding over an industry lawsuit in Texas seeking to kill the rule. Once the Trump administration took control of the CFPB, the bureau sided with the plaintiffs in the case and announced its intent to reopen the rule and propose changes. The judge issued the stay in November to give the agency time to formulate a proposal.

Following the CFPB's proposal in February, legal observers had expected Yeakel to lift the stay, setting in motion a deadline to comply with the payment restrictions. But he wrote in his ruling that he has received no request to lift the stay.

“With regard to the stay of the compliance date, the Bureau's position is that, at the current time, no party is seeking to lift the compliance-date stay for the payments provisions,” Yeakel wrote in the March 19 order.

Kraninger in February proposed rescinding the underwriting requirements of Cordray’s regulation rule — but she left intact the payment provisions, which were set to go into effect in August. The payment provisions restrict how often lenders can debit a consumer’s bank account when collecting on small dollar loans, among other requirements.

Last year, the CFPB under acting Director Mick Mulvaney sided with two payday industry trade groups that sued the bureau to invalidate the payday rule finalized under Cordray.

However, the CFPB and the payday trade groups disagreed about how long the compliance date should continue to be delayed.

The trade groups —the Community Financial Services Association of America and the Consumer Service Alliance of Texas — asked the judge to delay the compliance date until the CFPB completed its rulemaking rescinding the underwriting provisions.

The CFPB under Kraninger sought a more limited stay, asking the Texas court to wait until a separate case — an appeal by the Mississippi payday lender All American Check Cashing challenging the CFPB’s constitutionality — is decided by the Court of Appeals for the Fifth Circuit.

In oral arguments on March 12, the CFPB proposed that “it would be appropriate to continue the stay of litigation challenging the Rule's payments provisions only until the [Fifth] Circuit renders its decision in All American Check Cashing,” Judge Yeakel wrote.

Before Yeakel's November order establishing the stay — and the more recent one leaving the stay in place — compliance with the first federal regulatory restrictions of high-cost, small dollar loans had already been delayed multiple times. Cordray's first payday proposal in 2016 set a 15-month deadline, then Cordray’s final 2017 rule extended the compliance date by 21 months.

The CFPB did not respond to requests for comment.

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Payday lending Small-dollar lending ATR Litigation Kathy Kraninger Mick Mulvaney Richard Cordray CFPB