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District Court denies delay on payday lending compliance
On September 30, the U.S. District Court for the Western District of Texas denied a request made by two trade groups to stay the implementation of the payment provisions of the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule) while they appeal an earlier decision allowing the provisions to take effect. As previously covered by InfoBytes, the court upheld the 2017 Rule’s payment provisions, finding that the Bureau’s ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official.” 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. The court’s order, however, granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment.
The plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit and asked the district court to stay the running of the 286-day stay pending appeal, such that compliance would not be required until 286 days after the appeal is resolved. The court rejected that request, stating that the plaintiffs “failed to make a sufficient showing to warrant a stay pending resolution of the appeal” and that “the equities do not support extending the stay of the compliance date beyond the court's 286-day stay from August 30, 2021.”
Court temporarily stays compliance with CFPB’s payday rule
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.”
CFPB and lenders file briefs for 2017 payday lending case
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.
CFPB to address harm created from revocation of payday rule’s ability to repay standard
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.”
CFPB seeks comment on payday loan disclosure testing
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.
Trade group sues CFPB over payday repeal
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.”
CFPB urges court to reject challenge to Payday Rule’s payment provisions
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.”
Trade groups amend Payday Rule complaint
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.
District court lifts litigation stay in challenge to CFPB’s Payday Rule
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.
CFPB updates Payday Lending Rule FAQs
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.
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