With new Republican leadership seizing the reins of the Consumer Financial Protection Bureau, the U.S. payday loan industry finally has an opportunity to weaken or kill a regulation that it has battled for years.
Payday lenders fought tooth and nail to stop the CFPB from adopting the strict new restrictions, but their arguments largely fell on deaf ears during Richard Cordray’s four-and-a-half-year tenure as director. The regulation, finalized in October, would make it much harder to issue high-cost consumer loans of 45 days or less.
But the arrival of acting CFPB Director Mick Mulvaney, a former GOP congressman who was among the top recipients of campaign contributions from payday lenders, opens new doors for the long-embattled sector.
Earlier this week, Mulvaney made clear his opposition to the payday loan rule. So now, rather than having to persuade the CFPB to back down, industry lobbyists can focus on providing agency officials with justifications for retreating, as well as suggestions for how to do so in a way that will not spark a political backlash.
One payday lobbyist said that the industry is pursuing a multipronged strategy. One involves seeking help from the Trump administration to ease the regulatory environment. But the strategy may also include filing a lawsuit to get a judge to overturn the CFPB rule. “Hopefully one approach will work,” the source said.
The CFPB cannot withdraw the payday loan rule without undertaking a lengthy information-gathering process. But Mulvaney sits in an unprecedented position as both the acting director of the CFPB and the head of the White House Office of Management and Budget, which has authority to review executive branch regulations. The latter job may give him more options for defanging the CFPB’s payday lending rule.
To be sure, the CFPB, as an independent agency, is more insulated from OMB oversight than many other federal agencies. The bureau’s rules are not subject to a review of costs and benefits by the Office of Information and Regulatory Affairs, which sits within OMB.
But there may be other ways for OMB to flex its muscle. In a recent Wall Street Journal op-ed article, two Washington lawyers floated the argument that an obscure 1980 law called the Paperwork Reduction Act could be used to stop the payday loan rule. The basic theory is that the OMB can disapprove CFPB actions that impose unnecessary or excessive paperwork burdens.
Mulvaney was asked about that specific idea during a press conference earlier this week, and he voiced enthusiasm about exercising his powers as OMB director to undo the work of his predecessor at the CFPB.
“You can imagine that the Office of Management and Budget under the Trump administration might look very cautiously — even cynically — against rules that were produced by the Cordray CFPB,” he said.
“So to the extent it is appropriate and legal for the Office of Management and Budget’s Office of Information and Regulatory Affairs to figure out a way to modify, change or somehow impact those rules, that’s absolutely going to take place.”
Another strategy that Mulvaney could pursue: Delaying implementation of the payday loan rule, which is currently scheduled to take effect in July 2019.
Of course, these scenarios depend on Mulvaney remaining at the helm of the CFPB. The agency's deputy director, Leandra English, is challenging his appointment in court.
What's more, any effort by Mulvaney to blunt the impact of the payday rule could be subject to a separate court challenge. “The thing they have to be careful about,” said Ben Olson, a former CFPB lawyer who is now in private practice, “is that they not engage in action that can look like a backdoor repeal.”
Cordray’s allies argue that his efforts will be hard to undo because of the extensive research that the bureau put into developing the payday loan regulation. “It’s not one that an ideologue can just come in and change [on a] whim,” said Lauren Saunders, associate director of the National Consumer Law Center.
During the 2015-2016 election cycle, Mulvaney, who was then a Republican member of the House of Representatives, received $31,700 from payday lenders, according to records from the Center for Responsive Politics.
Mulvaney said Monday that those contributions do not represent a conflict of interest because he is no longer serving in elected office. “I do not think that the campaign contributions I took over the last six years create any conflicts at all,” he said.
Another avenue that the payday loan industry may pursue is litigation. Last week, Dennis Shaul, CEO of the Consumer Financial Services Association of America, told a reporter that his trade group would likely file a lawsuit seeking to overturn the CFPB rule in the next two to four weeks.
Shaul took a somewhat less confrontational approach this week. “CFSA is currently exploring its legal options,” he said in an email. “We anticipate having more to say in the coming weeks.”
Any lawsuit challenging the CFPB rule may have a better chance of success today than it would have had during the Cordray era, since the agency’s new leadership seems loath to defend the regulation in court.
Judges who are hearing legal challenges to regulations typically give a significant amount of deference to the agency. But if the agency no longer stands behind its own rule, the court may be less inclined to defer, said Kevin Petrasic, a lawyer at White & Case.
“The whole issue of deference going to the agency becomes a little more difficult in that situation,” he said.
One final avenue that payday lenders are pursuing is the repeal of the CFPB regulation by Congress, using a procedure established by the Congressional Review Act.
The repeal effort has bipartisan support in the House of Representatives, and it got a boost this week when Mulvaney voiced his support. But the payday industry still faces an uphill fight on Capitol Hill, since a vote in support of the payday loan industry, which many Americans see as predatory, could be politically treacherous.