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Financial Services Law Insights and Observations

CFPB urges court to reject challenge to Payday Rule’s payment provisions

Courts CFPB Payday Rule Payday Lending


On October 23, the CFPB filed a cross-motion for summary judgment in the U.S. District Court for the Western District of Texas in ongoing litigation involving two payday loan trade groups (plaintiffs) concerning the Bureau’s 2017 final rule covering payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, in August the plaintiffs asked the court to set aside the Rule and the Bureau’s ratification of the payment provisions of the Rule as unconstitutional and in violation of the Administrative Procedures Act. Earlier in July, the Bureau issued a final rule revoking the Rule’s underwriting provisions and ratified the Rule’s payment provisions (covered by InfoBytes here) in light of the U.S. Supreme Court’s decision in Seila Law LLC v CPFB (covered by a Buckley Special Alert, holding that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau). A motion for summary judgment filed by the plaintiffs last month requested the court to hold the Bureau’s payment provisions as unlawful and set them aside so a new notice-and-comment rulemaking process could be conducted, since the provisions “were part of a rule issued by an invalidly constituted agency.” The plaintiffs further argued that “[a]s binding precedent makes clear, an invalid agency cannot take lawful action. So the provisions were void from the start. Nor can the Bureau cure this problem by waving the magic wand of ratification.”

The Bureau, however, urged the court in its cross-motion to reject the plaintiffs’ challenge to the Rule’s payment provisions because while “they were initially promulgated by a Bureau whose Director was unconstitutionally insulated from removal by the President[,] . . . that problem has been fixed.” Moreover, “[a]s case after case confirms, such a ratification by an official unaffected by a separation-of-powers violation remedies an earlier constitutional problem—and Plaintiffs cite no authority suggesting otherwise,” the Bureau challenged, stating that “[w]hile Plaintiffs may want a more drastic remedy—wholesale invalidation of a rule they do not like—they can no longer complain that the Payment Provisions were adopted without adequate presidential oversight.”