United States: Maintain CFPB payday rule
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Almost four years after the Consumer Financial Protection Bureau (“CFPB”) first promulgated its payday loan regulation rule, a Texas federal district court upheld the rule’s payment terms against various constitutional and other challenges. The court, which previously suspended the rule’s original compliance date, also stipulated that the rules would come into effect in 286 days – June 13, 2022.
The CFPR first promulgated the Payday Loan Rule in November 2017. The original rule had two main parts – actuarial provisions and the payment provisions, which the court upheld. Underwriting requirements would have required payday lenders to check a borrower’s repayment ability before making a covered loan. The payment terms prohibit insured lenders from making more than two attempts to withdraw pre-authorized payments from a consumer’s account if two consecutive withdrawal attempts fail due to insufficient funds. Two industrial groups filed a lawsuit in 2018 and challenged both the insurance provisions and the payment provisions. The court suspended the rule’s fulfillment date while the litigation was pending and suspended the litigation itself for a long time while constitutional challenges to the structure of the CFPB and other related litigation remained pending. The CFPB, then under new management, lifted the insurance regulations as a rule in 2020. The action left a challenge to the remaining payment terms.
In its most recent decision, the court rejected all claims by the employers’ liability insurance association against the payment provisions. Among other things, the court found that the CFPB was unconstitutional at the time the regulation was issued in 2017, but that the regulation was not invalid from the beginning, and the ratification of the rule by the CFPB director in 2020 eliminated all constitutional issues in the issuance of the rule. The court also dismissed a number of appeals to the Administrative Procedure Act (“APA”) against the rule – including arguments that the rule exceeded the legal authority of the CFPB or was arbitrary and arbitrary. Citing the APA’s deferential standard of review, the court expressly upheld the CFPB’s findings that the practices prohibited by the payment rules are both unfair and abusive, although the abusive standard analysis was fairly superficial.
After the payment terms were confirmed, the court then had to decide when they would take effect. After the court ruled on behalf of the CFPB on all other pending issues, the court ruled in favor of the plaintiffs as to the entry into force and denied the CFPB’s request for the provisions to come into effect within 30 days. Instead, the court ruled that the parties should “benefit fully from the temporary suspension” from the Effective Date previously ordered by the court, and extended the compliance period by 286 days – the compliance period remaining when the court issued their suspension for the first time Times).
The CFPB faces a separate lawsuit from consumer advocates challenging the CFPB’s 2020 repeal of the actuarial provisions of the original payday regime. The CFPB has filed a motion to dismiss these proceedings, which is pending before the court.
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