The CFPB has filed a response in support of the motion for reconsideration filed by the trade groups challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The motion for reconsideration asks the Texas federal court to reconsider its June 12 order granting the stay of the trade groups’ lawsuit challenging the Payday Rule that the trade groups and the CFPB had sought in a joint motion but denying the stay of the Payday Rule’s August 19, 2019 compliance date that was also requested in the joint motion.

Four consumer advocacy groups had filed an amicus memorandum opposing the joint motion.  The joint motion sought the stay of the compliance date pursuant to Section 10(d) of the Administrative Procedure Act (APA), 5 U.S.C. Section 705.  In their amicus brief, the advocacy groups argued that a stay of the compliance date while also staying the litigation was inconsistent with the purpose of Section 705 to stay agency action in order to maintain the status quo during judicial review.

In its response in support of the motion for reconsideration, the CFPB argues that the court can properly use its authority under Section 705 to stay the Payday Rule’s compliance date while also staying the litigation because Section 705 contains no “‘active litigation’ requirement.”  According to the CFPB, the court’s authority to grant a Section 705 stay of the Payday Rule “is analogous to courts’ practice of preliminary enjoining an agency action and then staying further litigation while the agency reconsiders the challenged action.”

The amici had also argued that the stay of the compliance date requested in the joint motion was an attempt “to effect an end-run around” the Administrative Procedure Act’s notice-and-comment rulemaking procedures.  The CFPB argues in its response in support of the reconsideration motion that the court’s grant of the stay would not violate such APA procedures “because those requirements apply only to agencies and not to reviewing courts such as this Court.”

The CFPB explains in its response that while its reconsideration of the Payday Rule is the basis for the joint request to stay the litigation, it is not the basis for the joint request to stay the compliance date.  According to the CFPB, the basis for the joint request to stay the compliance date is the “serious legal question” presented by the trade groups’ lawsuit.

Although the joint motion had argued that the four factors used to assess requests for Section 705 stays were satisfied, the CFPB’s response offers more detailed support for that argument.  The CFPB asserts:

  • The trade groups have presented a substantial case on the merits of their claims that the rulemaking record for the Payday Loan Rule “did not provide substantial evidence for several findings underpinning critical elements of the Rule and that, to that extent, the Rule is therefore arbitrary and capricious.”
  • The trade groups have made a substantial case on the merits “with respect to their attack on the evidentiary basis” for the Bureau’s determination that making certain short-term and balloon-payment consumer loans without reasonably determining the borrower’s ability to repay is an unfair and abusive practice.  With respect to the Bureau’s unfairness determination, the CFPB contends that the trade groups have met their burden of showing a substantial case on the merits that the evidence before the Bureau may not have supported a conclusion that consumers could not reasonably avoid the harms found by the CFPB to be caused by non-underwritten loans, one of the statutory elements of unfairness.
  • It is uncertain whether the CFPB could prevent irreparable harm to the trade groups’ members by staying the Payday Rule itself.  The CFPB states that “although the Bureau could undertake a notice-and-comment rulemaking to delay the current Rule’s compliance date, the outcome of such a rulemaking would be uncertain, as it would depend, for example, on the considerations raised by public commenters.”  In addition, because the trade groups’ members are already suffering irreparable injury by preparing to comply with the Payday Rule, the CFPB could not prevent that harm by issuing a rule to delay the compliance date.

While we are hopeful that the court will grant the motion to reconsider, we continue to believe that the CFPB should be ready to publish a notice of proposed rulemaking to postpone the compliance date if the court denies the motion.  Interim rulemaking limited to the compliance deadline could be initiated in short order since the basis for seeking the delay is already set forth in the CFPB’s response in support of the motion for reconsideration.  Such rulemaking would reduce regulatory uncertainties while preserving the schedule for substantive rulemaking, currently anticipated for February 2019.