The Consumer Financial Protection Bureau may have rescinded large parts of its payday lending rule, but the parts that remain are “unnecessary, arbitrary, capricious, overreaching, procedurally improper, and substantially harmful to lenders and borrowers alike,” associations representing payday lenders said last week, in an amended suit challenging the rule.
The Consumer Financial Services Association of America and its Texas affiliate had challenged the strict payday lending rule issued during the Obama Administration in the U.S. District Court for the Western District of Texas in 2018.
However, in July, the CFPB, now under the control of the Trump Administration, agreed in large part with the association and rescinded part of the 2017 payday lending rule. The rescinded sections would have required that a borrower demonstrate an ability to repay a loan before it is approved. Now a borrower does not have to do so.
The remaining portions of the rule governs other issues such as automatic withdrawals that payday lenders may make from a borrower’s bank account to repay a loan. The financial services associations filed an amended lawsuit last week challenging the rest of the rule that still is on the books.
Payday lenders play a vital role, the trade groups say. “By providing a source of credit to consumers with low credit scores and no viable alternatives, payday and installment loans expand financial choices and allow individuals and households to better manage their cash flow in the face of volatile income and expenses,” the groups state.
The payments sections of the rule impose unwarranted limitations on a borrower’s ability to pre-authorize future payments, the trade associations claim. They argue that the “alleged harm,” consisting of overdraft fees charged to a borrower who might not have enough money in their account is not caused by the payday lender, but instead by the financial institution charging the fee.