The real fight over CFPB's payday rule is just beginning

Congress has lost its chance to toss out the Consumer Financial Protection Bureau’s payday lending rule, but bigger fights over the rule’s fate are still brewing.

The Senate’s deadline for approving an override of the rule under the Congressional Review Act has expired, according to the Stop the Debt Trap campaign, a coalition of consumer advocates, labor groups and other activists. A spokesman for Majority Leader Mitch McConnell did not respond for comment on the deadline.

While calculating the final end point for a Congressional Review Act bid can be tricky — it’s based on a somewhat technical tally of “legislative days”— any specific expiration date belies a large problem for the industry: lack of congressional momentum.

Andrew Harrer/Bloomberg

“Even if the deadline were a month from now, I don't think — and I never thought — that there was much of a chance that Congress would override the payday lending rule,” said Alan Kaplinsky, a partner at the law firm Ballard Spahr.

The lack of movement on the measure is significant given how widely used the legislative tool has become this term. Lawmakers have overturned 16 agency actions with the help of the Congressional Review Act since last year — including the hotly debated mandatory arbitration and indirect auto lending restrictions, both promulgated by the CFPB.

Why didn’t payday make the cut? Perhaps most crucially, the rule affects a much narrower slice of the financial industry, limiting support for its appeal from outside groups. As of Wednesday, the resolution, introduced by Sen. Lindsey Graham, R-S.C., was co-sponsored by just three additional lawmakers, Sens. Pat Toomey, R-Pa., Ted Cruz, R-Texas, and Jodi Ernst, R-Iowa. The indirect auto lending resolution, meanwhile, had 24 co-sponsors, along with sponsor Sen. Jerry Moran, R-Kansas, who spearheaded the effort.

But that hardly means the rule will remain in place as it’s written today.

While acting Director Mick Mulvaney said last year that modifying the payday rule was a task for Congress, he’s since indicated that he will reopen the rule for further consideration. This is likely to be a lengthy process — one bound by notice-and-comment procedures — and one that is likely to be fiercely debated by industry advocates and consumer groups alike.

“It's a battle that's going to be fought tooth and nail by both sides,” Kaplinsky said.

Consumer advocates note that there are a number of ways the agency could potentially narrow the rule, effectively watering it down. That might include altering provisions that require a lender to assess a borrower’s ability to repay and that limit a lender’s ability to make successive debits from a customer’s account when the transactions don’t process.

A pending legal case could also give Mulvaney another opening to make changes to the payday measure. The CFPB must respond next month to the lawsuit by two trade groups that charge the regulation is unlawful. Observers are waiting to see how the agency approaches the case — whether it defends the rule or at least parts of it. That’s especially true after the acting director dropped a lawsuit against a group of payday lenders associated with an American Indian tribe earlier this year.

“We're concerned and we're basing that mainly on [Mulvaney’s] historical record as acting director,” said Scott Astrada, director of federal advocacy for the Center for Responsible Lending. “You're going to see a shift from Capitol Hill to the courts and the agency — that's going to be the focal point for the future of the rule.”

A CFPB spokesman did not respond to questions about how the bureau might address the payday rule going forward.

The outcome for the rule is unclear at this point — the only certainty is that while the congressional battle may be over, the larger fight is just heating up.