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Financial Services Law Insights and Observations

District Court stays CFPB payday action following 5th Circuit decision

Courts Appellate Fifth Circuit TCPA CFPB Payday Lending Constitution Enforcement Funding Structure


On October 31, the U.S. District Court for the Northern District of Texas stayed an enforcement action filed by the CFPB against a defendant Texas-based payday lender until after the U.S. Court of Appeals for the Fifth Circuit issues its mandate in CFSA v. CFPB. As previously covered by a Buckley Special Alert, a three-judge panel unanimously held in CFSA that the CFPB’s funding structure created by Congress violated the Appropriations Clause of the Constitution. The parties filed a joint motion saying there was “good cause” to pause further proceedings in the litigation, explaining that the “agreed stay pending issuance of the mandate in CFSA will promote efficient resolution of the case, as the final decision in CFSA will control the resolution of key issues presented in [defendant’s] pending motion to dismiss.” One of the arguments raised in the defendant’s motion to dismiss centers around the assertion that the Bureau’s complaint should be dismissed because the agency’s funding structure violates the Constitution’s separation of powers.

In July, the Bureau sued the defendant for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans, in violation of the CFPA (covered by InfoBytes here). According to the Bureau, the defendant allegedly “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The defendant also allegedly attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts.