WASHINGTON – An appeals court has approved the postponement of the implementation of the Consumer Financial Protection Bureau’s payday loan rule, a victory for low dollar lenders who challenged the rule’s restrictions on access to consumer bank accounts.
In an Oct. 14 ruling, the U.S. Court of Appeals for the Fifth Circuit sided with payday lenders and auto title lenders, determining that they did not have to comply with the CFPB rule that is expected to come into effect in June while the Community Financial Services Association of America and the Consumer Service Alliance of Texas have appealed an earlier court ruling that ruled in favor of the CFPB.
This is a provision of the CFPB Payday Loan Rule that limited lender capacity withdraw funds from a consumer’s bank account after two consecutive unsuccessful attempts, unless the consumer agrees to further withdrawals. Under the rule, lenders will also be required to provide consumers with written notice before making their first payment withdrawal attempt from a bank account.
In August, a U.S. District Court judge for the Western District of Texas dismissed the industry groups challenging the rule and dismissed their motion to delay the rule’s effective date while they appealed against the rule. her decision. But the Fifth Circuit overturned the ruling, allowing the payday loan rule to remain on hold until the appeal process is complete.
Last year, under the leadership of Kathy Kraninger, former director of CFPB, the agency finished a rule gut the limits of payday lenders, providing long-awaited regulatory relief to the low-value lending industry. This rule rescinded underwriting requirements that had been imposed in a 2017 regulation under former CFPB director Richard Cordray. Payday lenders have been pushing hard to repeal the 2017 rule because it would have wiped out more than half of the income of lenders who offer loans of 45 days or less.
But the Kraninger-era rule preserved the original rule’s limits on the ability of payday lenders to access bank accounts, drawing the ire of low dollar lenders. Dave Uejio, who served as CFPB’s interim director until Rohit Chopra was recently confirmed as the agency’s permanent director, had signaled that the CFPB would seek to overturn Kraninger’s rule and restore the original settlement to 2017.