Payday lenders warned Thursday that they would sue to stop the just-released Obama administration payday lending rule if it is not changed, as partisan lines began to form around the regulation with Republicans criticizing it and Democrats rallying behind it.
Speaking with reporters Thursday morning, Dennis Shaul, head of the Community Financial Services Association of America that represents payday lenders, said that the Consumer Financial Protection Bureau’s 1,300-plus page rule announced early Thursday was still being reviewed, but would face a legal challenge if it weren’t changed.
“Our grounds for a lawsuit are substantial,” Shaul said. “If it is necessary after the comment period and the meditative period the bureau will go through, then indeed we will sue.
“Congress had the opportunity to ban payday lending, and chose to say that it should be regulated by the CFPB,” Shaul said, referring to the 2010 financial reform law that created the bureau and tasked it with regulating products such as payday loans. “This is less a regulation than it is an attempt to eliminate payday lending at its source.”
Among the other complaints lenders would have, Shaul indicated, was that the bureau failed to properly weigh existing state regulations on small-dollar lending in its rule. Also, lenders would challenge whether the bureau infringed on the Administrative Procedures Act by including “arbitrary” elements in the rule, such as a provision preventing lenders from accessing borrowers’ bank accounts in some circumstances. The trade group also might join a suit challenging the constitutionality of the bureau.
Rep. Jeb Hensarling, the Texas Republican who is chairman of the House Financial Services Committee, backed the industry’s criticism of the rule, accusing bureau Director Richard Cordray of “running roughshod not only over consumers but also the democratically elected governments of all 50 states.”
After the bureau released the proposal for the rule Thursday, however, Democrats and most consumer advocates lined up to support it.
Hillary Clinton, in a statement from her presidential campaign, said she stood behind the rule, calling it an “important proposal to crack down on abusive payday lending” and drawing a contrast between herself and Donald Trump, the presumptive Republican presidential candidate who has suggested he would repeal the law that created the bureau.
Ohio Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, warned that he will “fight attempts to weaken these sensible rules and I will make sure there are no loopholes that would allow lenders to keep exploiting struggling Ohioans.”
Ten consumer and civil rights organizations, including the Consumer Federation of America and the NAACP, joined in praising the proposal, but also recommending changes following the comment period. In particular, while the groups favored the inclusion of a requirement that lenders ascertain that borrowers have the ability to repay loans, they noted that loans with interest rates over 300 percent will still be viable under the rules, an outcome that many advocates of the rule sought to avoid.
