On Monday, an industry group representing the U.S. loan sharks filed a lawsuit against the Consumer Financial Protection Bureau in a bid to block an Obama-era rule that would kill the payday-lending business.
Under that rule, lenders are required to ensure that prospective borrowers can repay the loans. The payday-lending industry will also be forced to do business with a specific customer only a limited number of times.
The industry slammed the new rule for being “draconian” and putting at risk the existence of the very payday-lending industry, according to court records. The lawsuit was filed with the U.S. District Court for the Western District of Texas by the Community Financial Services Association of America (CFSAA).
CFSAA argues that the Obama administration had a “deeply paternalistic view” when it concluded that consumers cannot take care of their finances. The Obama-era rule is very controversial, with Republicans in both houses of the United States Congress trying to block it.
Loan Sharks “Pursuing All Options”
CFPB’s acting director Mick Mulvaney has announced that his team was reviewing the rule. However, the payday-lending industry wants to push things even further and faster by blocking the regulation in the nation’s courts.
A spokesperson of the CFSAA said that the industry group is “pursuing all options” including litigation when it comes to the Obama-era “harmful small-dollar lending rule”.
The CFPB has not commented on the reports about the lawsuit. It wasn’t immediately clear if the federal agency would take action in court.
Payday loans are offered by an extremely lucrative, but controversial industry in the United States. There are more payday lenders than Starbucks and McDonalds’ restaurants in the states where the practice is legal.
Every year, 12 million Americans take out a loan from loan sharks. The total cost of these loans climbs to $7 billion each year.
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