CFPB argues pay rule legal despite Supreme Court ruling

CFPB Headquarters. (Source package: Shutterstock)

The CFPB argued in Federal Court that the agency’s payday loan rule has been valid since director Kathleen Kraninger “ratified” all of the agency’s actions following a US Supreme Court ruling. United this summer who ruled the structure of the office illegal.

The Supreme Court ruled that the agency’s structure was unconstitutional since Kraninger could only be removed from office for just cause. The decision effectively meant that Kraninger could stay in office but could be removed at will by the president.

The Consumer Financial Services Association of America, the trade group representing payday lenders and a Texas trade group have argued that since the Supreme Court declared the original CFPB structure unconstitutional, the rule should also be rejected.

The CFSA filed a lawsuit against the CFPB in April 2018, alleging the rule was arbitrary and would harm consumers who need loans offered by their members.

In documents filed earlier this month, the CFPB argued that the payday lenders’ claims were false.

“Although the plaintiffs offer a mishmash of arguments for which the ratification here is not valid, these arguments find no support in a precedent or in a principle of separation of powers,” said CFPB.

The agency said Kraninger had “settled” the problems with the agency’s actions by ratifying them following the Supreme Court ruling.

The agency also said that trade groups’ challenge to the pay rule amounts to political disagreements.

The pay day rule has had a complex and difficult past. In 2017, the agency published a payday loan rule who the payday lending industry said would decimate their businesses, under then-director Richard Cordray.

When President Trump took office, former CFPB interim director Mick Mulvaney and current director Kathleen Kraninger said they intended to reassess the payday rule.

And both parties to the lawsuit have agreed to stay the payday loan trial until the broader issue of the agency’s constitutionality can be addressed.

In July, Kraninger released a revised final rule on payday loans. The final rule removed provisions requiring a lender to verify that a borrower had the capacity to repay a loan before the loan was approved.

However, the rule retained parts of Cordray’s Rule that limited a lender’s ability to access a borrower’s bank account.

Credit union groups have also criticized the CFPB rule, saying credit unions should be exempted from it or that any lending inspired by the CFPB rule. Alternative payday loan from NCUA model be exempted.

Depending on the results of the presidential race, the payday loan rule could again be revised. Democratic presidential candidate Joe Biden has vowed to revitalize the CFPB and could push for tighter regulation of consumer credit.

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