The CFPB and the two industry trade groups that filed a lawsuit in a Texas federal district court challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) filed a new status report with the court on March 8 to follow up on their March 1 status report.
The new status report sets forth the parties’ views on whether the court should continue to stay the lawsuit and the Payday Rule’s August 19, 2019 compliance date. The stays were entered in, respectively, June 2018 and November 2018 “pending further order of the court.” Early last month, the CFPB issued proposals to rescind the Payday Rule’s ability-to-repay (ATR) provisions in their entirety and delay the compliance date for the ATR provisions until November 19, 2020. The proposals would leave unchanged the Payday Rule’s payment provisions and their August 19 compliance date.
In the new status report, the parties agree that it is appropriate for the stay of the ATR provisions to continue and for the litigation over the ATR provisions to remain stayed until the CFPB concludes its rulemaking.
The parties disagree, however, about the reasons for, or the appropriate duration of, the continuation of the stays of the compliance date for the payment provisions and the litigation to the extent it challenges the payment provisions. The trade groups seek a continuation of the stays until the Bureau completes its rulemaking on the ATR provisions. In support, they point to the similar arguments they have made challenging the validity of the ATR and payment provisions, including the CFPB’s alleged unconstitutionality. They also point to the Bureau’s potential willingness to revisit the payment provisions and argue that lifting the stays would require the plaintiffs to seek preliminary injunctive relief before August 19 even though the litigation could be mooted if the CFPB were to decide to revisit the payment provisions.
The trade groups also ask the court, if it prefers the CFPB’s proposal, to keep the stay of the compliance date for the payments provisions in place for at least 90 days after the Fifth Court issues its mandate in All American Check Cashing “to afford Plaintiffs an opportunity to seek preliminary injunctive relief before compliance with these provisions is required.” All American Check Cashing is one of three cases currently pending in the circuit courts that involve a challenge to the CFPB’s constitutionality.
For its part, the CFPB is not seeking to lift the stays of the litigation challenging the payment provisions and their compliance date at this time but it does not believe there is a basis for continuing the stays until the Bureau completes its rulemaking to address the ATR provisions. According to the Bureau, the mere possibility of a rulemaking to revise the payment provisions is not a sufficient justification for continuing either stay. Instead, the Bureau states that it would be appropriate to continue the stay of the litigation challenging the payment provisions until the Fifth Circuit issues its decision in All American Check Cashing, after which the parties would make a recommendation to the court for how such litigation should proceed. Oral argument in All American Check Cashing is scheduled for tomorrow, March 12.
With regard to the stay of the payment provisions’ August 19 compliance date, the CFPB indicates that continuation of the stay is warranted only if the trade groups can show various factors, including at least a “substantial case on the merits,” and the trade groups have not attempted to do. Nevertheless, the CFPB takes the position that the court need not decide now on an expiration date for the stay of the compliance date. Instead, the CFPB states that if it should later ask the court to lift the stay, the trade groups would have the opportunity to argue against lifting the stay and both parties would have an opportunity to address whether the lifting of the stay should be delayed for a reasonable period to allow companies to comply with the payment provisions.
As we have previously commented, the indefinite stay of the compliance date of the payment provisions puts the industry in an untenable position. The stay could be lifted at any time, mere days before the compliance date or even after the compliance date. To our mind, the only stay of real value would be one that provided assurance that covered lenders will have a reasonable period of time—preferably half a year or longer—to bring themselves into compliance with the payment provisions. That kind of stay is not in place now and does not seem to be on the horizon.
Accordingly, cautious lenders who have not already done so need to start analyzing the payment provisions and how they might impact existing business methods and preparing to implement the extensive programming and operational changes the payment provisions would require. The payment provisions contain numerous ambiguities, complexities and other traps for the unwary. And there is no current assurance they will not go into effect on August 19, 2019.