Trade group threatens to sue CFPB over payday loan rules

A financial services trade group is threatening to sue the Consumer Financial Protection Bureau (CFPB) over its proposed payday lending rules, just hours after their release.

Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA), said the grounds for a lawsuit are substantial.

{mosads}“If it’s necessary after the public comment period, then indeed, we will sue,” he said.

The rules released Thursday aim to crack down on predatory payday lenders, but Shaul said they will have the adverse effect of wiping out an industry that provides an important source of credit for millions of Americans who live paycheck to paycheck.

Shaul said his group could bring a lawsuit challenging whether the bureau properly weighed the efforts of the states or its administrative proceedings. Though the D.C. Circuit Court of Appeal is weighing the constitutionality of the CFPB, he said his group could have a constitutional claim as well.

While the financial trade group threatened litigation, proponents were calling on the bureau to make the rules even stricter.

“While this is an important step in the right direction, the fight is far from over,” Karl Frisch, executive director of Allied Progress, said in a statement. “Payday lenders have spent tens of millions of dollars currying favor with powerful politicians and they will do whatever it takes to keep this predatory racket running. We owe it to hard working men and women everywhere to remain vigilant and fight on until the debt trap is ended once and for all.”

The rules, which will force lenders to consider a borrower’s ability to repay a loan or structure payments in a way to pay down the principal, drew support from Democratic presidential front-runner Hillary Clinton and lawmakers such as Sen. Dick Durbin (D-Ill.), who referred to the rules as the “the right thing to do to protect working families and consumers.”

“Payday lenders offer a quick way to make ends meet, but often with devastating consequences,” he said in a statement. “Lenders are, in many instances, making these loans knowing that the consumer does not have the ability to repay them. This forces borrowers to choose between default and repeated borrowing, which perpetuates a cycle of debt.”