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  • Court temporarily stays compliance with CFPB’s payday rule

    Courts

    On August 31, the U.S. District Court for the Western District of Texas granted summary judgment in favor of the CFPB in an action filed by two trade groups challenging the payment provisions of the Bureau’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule), but stayed the August 19, 2019 compliance date for 286 days after final judgment as requested by the plaintiffs. As previously covered by InfoBytes, the plaintiffs challenged the 2017 Rule’s payment provisions’ compliance date and asked the court to set aside the 2017 Rule and the Bureau’s ratification of the payment provisions of the 2017 Rule as unconstitutional and in violation of the Administrative Procedures Act.

    In granting summary judgment to the Bureau, the court ruled that the ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official.” Among other things, the court also concluded that the payment provisions, as a matter of law, “are consistent with the Bureau’s statutory authority and are not arbitrary and capricious,” and that the Bureau properly considered the costs and benefits of such payment provisions. However, in granting the plaintiffs’ request for a longer stay, the court stated it was persuaded by the plaintiffs’ arguments “that they should receive the full benefit of the temporary stay and that a more substantial compliance date allows time for appeal,” consistent with the fact that the “stay was requested with 445 days left until the implementation deadline, and it was entered with 286 days remaining.” 

    Courts Payday Lending Payday Rule CFPB Administrative Procedures Act Agency Rule-Making & Guidance

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  • CFPB and lenders file briefs for 2017 payday lending case

    Courts

    On August 6, the U.S. District Court for the Western District of Texas received briefs from the CFPB and the two trade groups (plaintiffs) challenging the CFPB’s 2017 final payday/auto title/high-rate installment loan rule (2017 Rule) regarding a compliance date for the 2017 Rule’s payment provisions. The briefs were filed in response to the court’s July 29 order requesting briefing “concerning what would be the appropriate compliance date if the court were to deny Plaintiffs’ motion for summary judgment and grant Defendants’ motion for summary judgment.” As previously covered by InfoBytes, in August 2020, the plaintiffs asked the court to set aside the 2017 Rule and the Bureau’s ratification of the payment provisions of the 2017 Rule as unconstitutional and in violation of the Administrative Procedures Act (APA). Earlier in July 2020, the Bureau issued a final rule revoking the 2017 Rule’s underwriting provisions and ratified the 2017 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). 

    According to the CFPB’s brief, the stay of the compliance date should remain in place for no longer than 30 days after the Court’s decision on summary judgment. The CFPB argued, among other things, that a 30-day delay is consistent with the APA and should provide sufficient time to make any final preparations. In addition, the CFPB argued that complying with the payment provisions is not considered “onerous” because the provisions generally prohibit lenders from withdrawing payments for a covered loan from a borrower’s account after two consecutive attempts have failed due to lack of sufficient funds and because the provisions require lenders to give consumers certain notices, specifically before attempting to withdraw a payment for the first time and before making an “unusual” withdrawal attempt. In addition, the CFPB argued that “[f]urther extension of the stay is particularly unwarranted because the only basis for the stay disappeared over a year ago.”

    According to the plaintiffs’ brief, an “order lifting the stay…should set the compliance date no earlier than 445 days (or, at a minimum, 286 days) from the date the court lifts the stay, reflecting the time left for compliance when the stay was sought (or entered).” In addition to arguing that requiring immediate compliance would violate the APA, the plaintiffs argued, among other things, that “the 2017 Rule gave lenders twenty-one months before compliance would be required, which the Bureau viewed as necessary to give lenders ‘enough time for an orderly implementation period’ and to ‘reasonably adjust their practices to come into compliance.’” Moreover, the plaintiffs argued that the Bureau will need to set a new compliance date via notice-and-comment rulemaking if the stay did not toll the compliance period.

    Responses from both parties are due by August 16.

    Courts CFPB Payday Rule Payday Lending Administrative Procedures Act

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  • CFPB to address harm created from revocation of payday rule’s ability to repay standard

    Federal Issues

    On March 23, CFPB acting Director Dave Uejio published a blog post highlighting the Bureau’s belief that harms in the small dollar lending market identified by its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” still exist. As previously covered by InfoBytes, in 2020, the Bureau issued a final rule revoking certain underwriting provisions of the 2017 final rule, including (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. Uejio stressed that the Bureau intends to “use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking.” Additionally, he noted that the Bureau “continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.”

    Federal Issues CFPB Small Dollar Lending Payday Lending Ability To Repay Payday Rule Underwriting

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  • CFPB seeks comment on payday loan disclosure testing

    Federal Issues

    On November 12, the CFPB published a notice and request for comment in the Federal Register detailing a plan for payday loan disclosure testing. The Bureau notes that a contractor will conduct one-on-one consumer interviews to evaluate potential options for payday loan disclosures. The interviews will focus on how consumers use the disclosure information to assess the cost, payment, and timing of the loan. The results of the testing, which are estimated to conclude in September 2021, will be used to inform a future potential rulemaking covering payday loan disclosures. Comments on the notice must be submitted by December 14.

    Federal Issues CFPB Payday Lending Payday Rule Disclosures

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  • Trade group sues CFPB over payday repeal

    Courts

    On October 29, a national community advocate group filed a complaint against the CFPB challenging the Bureau’s repeal of the underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Rule). As previously covered by InfoBytes, in July, the CFPB issued a final rule revoking, among other things, the Rule’s (i) 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) prescribed mandatory underwriting requirements for making the ability-to-repay determination; and (iii) the “principal step-down exemption” provision for certain covered short-term loans.

    The complaint alleges that the Bureau’s repeal of the underwriting provisions of the Rule was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” Specifically, the complaint asserts that the Bureau invented a “new evidentiary standard” when it required that evidence supporting the need for the underwriting provisions be “robust and reliable,” which, according to the complaint, is a standard “custom-designed” to repeal the provisions. The complaint further argues that the CFPB “failed to consider the harms that consumers suffer from no-underwriting lending” and relied on analysis and data that was not “previously made available for comment.” The complaint seeks a declaration that the repeal was unlawful and an order requiring the Bureau to “take necessary steps to ensure prompt implementation of the 2017 Payday Lending Rule’s Ability-to-Repay Protections.”

    Courts CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance Administrative Procedures Act

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

    Courts

    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.”

    Courts CFPB Payday Rule Payday Lending

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  • Trade groups amend Payday Rule complaint

    Courts

    On August 28, two payday loan trade groups (plaintiffs) filed an amended complaint in the U.S. District Court for the Western District of Texas in ongoing litigation challenging the CFPB’s 2017 final rule covering payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, the court granted the parties’ joint motion to lift the stay of litigation, which was on hold pending the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB (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). In light of the Supreme Court’s decision, the Bureau ratified the Rule’s payments provisions and issued a final rule revoking the Rule’s underwriting provisions (covered by InfoBytes here).

    The amended complaint requests the court set aside the Rule and the Bureau’s ratification of the rule as unconstitutional and in violation of the Administrative Procedures Act (APA). Specifically, the amended complaint argues, among other things, that the Bureau’s ratification is “legally insufficient to cure the constitutional defects in the 2017 Rule,” asserting the ratification of the payment provisions should have been subject to a formal rulemaking process, including a notice and comment period. Moreover, the amended complaint asserts that the payment provisions are “fundamentally at odds” with the Bureau’s lack of authority to create usury limits because they “improperly target[] installment loans with a rate higher than 36%.” Finally, the amended complaint argues that the Bureau “arbitrarily and capriciously denied” a petition from a lender seeking to exempt debit-card payments from the payment provisions of the rules.

    Courts Payday Lending Payday Rule CFPB Administrative Procedures Act U.S. Supreme Court

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  • CFPB denies company’s petition to set aside CID, citing investigative authority broader than enforcement authority

    Courts

    On August 13, the CFPB denied a petition by a credit repair software company to set aside a civil investigative demand (CID) issued by the Bureau in April. The CID requested information from the company “to determine whether providers of credit repair business software, companies offering credit repair that use this software, or associated persons, in connection with the marketing or sale of credit repair services, have: (1) requested or received prohibited payments from consumers in a manner that violates the Telemarketing Sales Rule [(TSR)]. . .; or (2) provided substantial assistance in such violations in a manner that violates [the CFPA or TSR].” The company petitioned the Bureau to set aside the CID, arguing, among other things, that the CID exceeds the Bureau’s jurisdiction and scope of authority because the agency lacks investigative and enforcement authority over companies that provide credit repair services and companies that provide customer relationship management software for such services. The company also argued that (i) the CID is invalid because the company does not engage in telemarketing, perform credit repair services, or market or sell credit repair services to consumers; (ii) the company is not a “covered person” or “service provider” under the CFPA; and (iii) the company is not required to respond to the CID because “it is clear that [the company] does not provide any assistance, let alone substantial assistance, to any covered person in violation of the CFPA.”

    The Bureau rejected the company’s arguments, countering that its “authority to investigate is broader than its authority to enforce.” According to the Bureau, “[r]egardless of whether [the company] itself engages in telemarketing or accepts payments from consumers in a manner that violates the TSR, the Bureau has the authority to obtain information from [the company] that will help it assess whether others may have done so.” Furthermore, the Bureau stated that the CFPA grants it the authority to prohibit unfair, deceptive, or abusive acts or practices committed by a “covered person” or a “service provider,” and “the authority over those who, knowingly or recklessly, provide substantial assistance to a covered person,” which include companies that provide credit repair services. “Whether a company that sells business software to credit repair firms does, in fact, substantially assist any violations committed by those firms depends upon the facts,” the Bureau explained.

    Courts Payday Rule Payday Lending CFPB CIDs

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  • District court lifts litigation stay in challenge to CFPB’s Payday Rule

    Courts

    On August 20, the U.S. District Court for the Western District of Texas granted a joint motion to lift a stay of litigation in a lawsuit filed by two payday loan trade groups (plaintiffs) challenging the CFPB’s 2017 final rule covering payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, in 2018 the plaintiffs filed a lawsuit asking the court to set aside the Rule, claiming the Bureau’s rulemaking failed to comply with the Administrative Procedure Act and that the Bureau’s structure was unconstitutional. The parties filed their joint motion to lift the stay last month following several recent developments, including the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the clause that required cause to remove the director of the CFPB was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert). In light of the Court’s decision, the Bureau ratified the Rule’s payments provisions and issued a final rule revoking the Rule’s underwriting provisions (covered by InfoBytes here). The litigation will focus on the Rule’s payments provisions, with the Bureau noting in the joint motion that it intends to “promptly fil[e] a motion to lift the stay of the compliance date for the payments provisions of the 2017 Rule.” The order outlines the briefing schedule for the parties, with summary judgment briefing due to be completed by December 18.

    Courts Payday Rule Payday Lending CFPB

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  • CFPB updates Payday Lending Rule FAQs

    Agency Rule-Making & Guidance

    On August 11, the CFPB released updated FAQs pertaining to compliance with the payment provisions of the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule). Earlier in June, the Bureau issued a final rule revoking certain underwriting provisions of the Payday Lending Rule (previously covered by InfoBytes here), along with FAQs discussing the details of covered loans and “payment transfers” under the rule. The updated FAQs provide guidance on several topics, including (i) exemptions for certain loans originated by a federal credit union; (ii) Regulation Z’s coverage threshold; (iii) conditions for when closed-end and open-end loans may become covered longer-term loans; (iv) exclusions for real estate secured credit; (v) the purchase money exclusion’s applicability to automobile loans; (vi) situations where failed payment transfers count towards the limit under Payday Lending Rule; (vii) how a “business day” is determined; and (viii) situations where a lender must provide an unusual payment withdrawal notice.

    Agency Rule-Making & Guidance CFPB Payday Lending Payday Rule

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