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Financial Services Law Insights and Observations

District Court tosses challenge to CFPB’s payday rule

Courts CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance


On January 14, the U.S. District Court for the District of Columbia granted two motions to dismiss a challenge to the Bureau’s 2020 final rule revoking certain underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule). As previously covered by InfoBytes, the final rule revokes, among other things (i) the provision that makes it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay the loans according to their terms; (ii) the prescribed mandatory underwriting requirements for making the ability-to-repay determination; (iii) the “principal step-down exemption” provision for certain covered short-term loans; and (iv) related definitions, reporting, and recordkeeping requirements. The plaintiff (a national association of organizations serving Latino communities) filed suit alleging the Bureau’s 2020 final rule violated federal rulemaking requirements and arguing that the 2020 final rule rested on an “unreasonable” new evidentiary standard and advanced statutory definitions that “appear custom-designed to repeal the ability-to-repay protections” of the Payday Lending Rule. The plaintiff asked the court to overturn the repeal and order the Bureau to implement the 2017 Payday Lending Rule. Motions to dismiss for lack of standing were filed by the Bureau as well as an intervenor-defendant association.

In dismissing the action, the court determined that the plaintiff failed to establish a “concrete and demonstrable injury to its activities” attributable to the 2020 final rule’s impact. The plaintiff contended that it suffered injury because the 2020 final rule made its work more difficult due to member organizations needing more assistance and resources from the plaintiff in order to “help families avoid or address unaffordable payday and title loans.” The court reasoned, however, that “[e]xpenditure of resources in response to agency action alone is not enough to establish a cognizable injury because it leaves step one of the inquiry unanswered.” Rather, “there must be a separate perceptible impairment of the organization's ability to provide services—something that makes it more difficult for the organization to conduct its activities”—an impairment, the court stated, for which the plaintiff has not plausibly alleged.