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Court Delays CFPB Payday Rule as Industry Challenge Continues (1)

Oct. 15, 2021, 4:44 PMUpdated: Oct. 15, 2021, 8:33 PM

Payday lenders won a bid to delay a Consumer Financial Protection Bureau rule limiting their access to customers’ bank accounts to collect payments.

Payday and auto title lenders don’t have to comply with the CFPB rule while the Community Financial Services Association of America and a Texas-based trade group appeal a district court ruling in favor of the bureau, the U.S. Court of Appeals for the Fifth Circuit said in an Oct. 14 ruling.

The CFPB rule requires payday and vehicle title lenders to get permission to access a consumer’s bank account after two failed attempts to collect on the short-term, high-cost loans, among other provisions.

Judge Lee Yeakel of the U.S. District Court for the Western District of Texas in August started a 286-day transition period for the rule to take effect after rejecting the industry group’s challenge. The Fifth Circuit said in its unanimous order that the transition period won’t start until the appeals process is completed.

Judges Jerry E. Smith, Stephen A. Higginson and Don R. Willett signed the order.

The court’s order will allow payday lenders to keep doing business as the litigation moves forward, the CFSA said in a Friday statement.

“Without the Fifth Circuit’s extension of the stay, our members would have been forced to expend considerable time and resources coming into compliance before the Fifth Circuit had an opportunity to resolve our appeal,” the industry group said.

The CFPB declined to comment.

The CFPB had set a June 13, 2022 effective date for the rule following Yeakel’s ruling. The district court judge rejected the industry’s motion to stay the regulation while the trade groups appealed his ruling to the Fifth Circuit.

The rule under appeal is a slimmed-down version of regulations first issued in October 2017 by former Director Richard Cordray, an Obama appointee.

The original rules included tough requirements for lenders to determine a borrower’s ability to repay a payday or vehicle title loan, which can have interest rates as high as 400%. The CFPB also mandated cooling-off periods after a borrower takes out three loans in a short period of time.

The Trump administration rescinded those provisions, but kept restrictions on payday lender access to consumer bank accounts.

Consumer advocates hope that President Biden’s CFPB director, Rohit Chopra, will reinstate the ability-to-repay provisions and the cooling-off requirements.

Chopra was sworn into his post on Oct. 12.

The case is Cmty. Fin. Servs. Ass’n. of Am., Ltd. v. CFPB, 5th Cir., No. 21-50826, stay granted 10/14/21.

(Updates with comments from payday lending industry in paragraphs 6 and 7. )

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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