The CFPB and the two trade groups challenging the CFPB’s 2017 final payday/auto title/high-rate installment loan rule (2017 Rule) have filed a joint motion asking the Texas federal district court hearing the trade groups’ lawsuit to lift the stay of the lawsuit, originally entered in June 2018 on the heels of the trade group’s motion for a preliminary injunction and before the CFPB’s response to the motion or answer to the complaint in the case.

Following the court’s initial stay of the lawsuit, the court entered an order in November 2018 staying the August 19, 2019 compliance date for both the 2017 Rule’s ability-to-repay provisions and its payment provisions.  While both sides now agree that the stay of the lawsuit should be lifted, they disagree on next steps.  Once the stay is lifted, the Bureau intends to file a motion to also lift the stay of the compliance date for the payment provisions so they can take effect.  The trade groups, however, plan to oppose that motion and continue to challenge the payment provisions.

One issue in ensuing litigation will be the effect of last month’s U.S. Supreme Court decision in Seila Law and Director Kraninger’s purported ratification of the payment provisions of the 2017 Rule.  As set forth in the joint motion, the Bureau takes the position that the ratification cures any constitutional defect in the 2017 Rule while the trade groups assert that the ratification is legally insufficient to cure any constitutional defect.

In their joint motion, the parties seek an extension of the deadlines for briefing on the motion to lift the stay of the compliance date for the payment provisions.  (The trade groups have not previously briefed the validity of the payment provisions in detail and the CFPB has not briefed it at all nor has it ever filed a formal response to the complaint.)  While both sides anticipate that the lawsuit can be finally resolved on cross-motions for summary judgment, they did not reach an agreement on a briefing schedule for the cross-motions.  Accordingly, they have offered the following alternate proposals to the court:

  • The trade groups assert that it is premature to set a briefing schedule because resolution of the cross-motions will depend on how the court rules on the Bureau’s motion to lift the stay of the compliance date and related proceedings that may follow (such as a preliminary injunction motion if the court lifts the stay).  The trade groups state that they “have an interest in resolving the merits of their challenge to the payment provisions before those provisions take effect.”  They assert that they cannot “intelligently negotiate a timeline for summary judgment” without knowing when the provisions will take effect “which will turn on whether the Court lifts the stay of the compliance date and how much time Plaintiffs’ members are given to bring their business operations into compliance.”
  • The Bureau asserts that it is not necessary to wait for the court to rule on its motion to lift the stay of the compliance date before beginning summary judgment briefing.  It states that although the trade groups have indicated that they are interested in resolving the merits of their challenge before the payment provisions take effect, “it is unclear how delaying summary judgment briefing will serve their interest in expeditious resolution of their challenge.” (emphasis provided).  The Bureau asks the court to order the parties to negotiate a proposed briefing schedule to be proposed jointly or if no agreement can be reached, to provide each side’s proposed schedule to the court within 14 days of the court’s order lifting the stay of the lawsuit.

We have been indirectly advised that initially the trade groups are asking for a 9.5 month delay in implementation of the payment provisions and the Bureau is recommending 60 days.  Presumably, the requested time periods (or any subsequently negotiated time period) would begin to run from the date the court decides to lift the stay of the compliance date—assuming, of course, that the court sides in whole or in part with the CFPB.  This would be after conclusion of briefing, any required discovery and drafting of the court’s decision and order.

While this period might well run several months, depending upon the briefing schedule determined by the parties and/or the court, the 60-day implementation period the CFPB is seeking is nevertheless patently inadequate.  In advance of the court’s decision on lifting the stay, the industry will not know whether it needs to implement the payment provisions and, if so, which ones.  To take one key example, the structure of compliance programs will be greatly impacted by the court’s decision whether the 2017 Rule’s treatment of card payments is arbitrary and capricious (as seems clear to us).  If the court rules that some or all of the payment provisions are valid, 60 days would be grossly insufficient for companies to implement the necessary operational and programming changes.  Thus, a 60-day implementation period would pressure companies in the industry to prepare ahead of time for payment provisions that might never go into effect or might be substantially modified.

Stay tuned!