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District Court tosses challenge to CFPB’s payday rule
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.
5th Circuit delays payday lending compliance until after resolution of appeal
On October 14, the U.S. Court of Appeals for the Fifth Circuit stayed 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) for 286 days after the resolution of the appeal. The appellate court’s order contrasts with an order issued last month by the U.S. District Court for the Western District of Texas, which denied a request by the two trade group appellants to stay the compliance date pending appeal (covered by InfoBytes here). The district court previously upheld the 2017 Rule’s payment provisions (covered by InfoBytes here), 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,” and that the payment provisions were not arbitrary and capricious. The district court’s order regarding the stay granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment. The 5th Circuit’s order, however, grants the trade groups’ motion to extend the stay of the compliance date until 286 days after resolution of the appeal.
CFPB issues semi-annual report to Congress
On October 8, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2020 to March 31, 2021. The report, which is required by Dodd-Frank, addresses, among other things, the effects of the Covid-19 pandemic on consumer credit, significant rules and orders adopted by the Bureau, consumer complaints, and various supervisory and enforcement actions taken by the Bureau. In his opening letter, Director Dave Uejio discusses the Bureau’s efforts to increase racial equity in the marketplace and to mitigate the financial effects of the Covid-19 pandemic on consumers, including measures such as reinstituted regular public reporting, developing Prioritized Assessments to protect consumers from elevated risks of harm related to the pandemic, and numerous enforcement actions with claims or findings of various violations. Uejio also notes that communities of color, particularly Black and Hispanic communities, have disproportionately experienced the health and economic effects of the pandemic, and states that the Bureau is utilizing “all [of its] tools to ensure that all communities, of all races and economic backgrounds, can participate in and benefit from the nation’s economic recovery.”
Among other topics, the report highlights two publications by the Bureau: one focusing on the TRID Integrated Disclosure Rule (covered by InfoBytes here), and another focusing on credit record trends for young enlisted servicemembers during the first year after separation (covered by InfoBytes here). The effects of the Covid-19 pandemic on consumer credit are also discussed, as are the results from the Bureau’s Making Ends Meet Survey. In addition to these areas of focus, the report notes the issuance of several significant notices of proposed rulemaking related to remittance transfers, debt collection practices, the transition from LIBOR, and qualified mortgage definitions under TILA. Multiple final rules were also issued concerning Truth in Lending Act (Regulation Z); remittance transfers; and payday, vehicle, title, and certain high-cost installment loans. Several other rules and initiatives undertaken during the reporting period are also highlighted.
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.”