The CFPB has filed its combined cross-motion for summary judgment and opposition to the plaintiffs’ motion for summary judgment in the lawsuit filed by industry trade groups challenging the CFPB’s final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule). The combined motion and opposition follows the filing of an Amended Complaint by the trade groups focused on the Rule’s payments provisions, the filing of an Answer to the Amended Complaint by the CFPB, and the filing of a motion for summary judgment by the trade groups.
In the Amended Complaint, the plaintiffs alleged that the Rule violates both the U.S. Constitution and the Administrative Procedures Act (APA) and that the payments provisions have additional infirmities that render them invalid.
The CFPB makes the following principal arguments in opposition to the plaintiff’s summary judgment motion and in support of its cross-motion for summary judgment:
- Director Kraninger’s ratification of the payments provisions is valid because Dodd-Frank’s unconstitutional removal provision did not strip the Bureau of its authority to promulgate rules. Even if the Bureau lacked authority to adopt the payments provisions initially, the ratification is still valid under common law ratification principles or as an equitable remedy. Courts that have considered ratifications of agency rules have uniformly upheld them without requiring the agency to redo the notice-and-comment process and nothing in the APA requires an agency to conduct a second notice-and-comment process to affirm a previously-promulgated rule. In addition, the Constitution and U.S. Supreme Court precedent does not require a new rulemaking but only that there be a decision by an official fully accountable to the President as to whether the payments provisions should remain in place (which decision is supplied by the ratification).
- The ratification of the payments provisions is not arbitrary and capricious within the meaning of the APA because there were no inconsistencies between the provisions and the Bureau’s repeal of the Rule’s underwriting provisions. More specifically:
- The ratification did not change the amount of time companies have to come into compliance (with the Bureau commenting that “[i]f some lenders put preparations on hold in hopes that [the provisions] would be invalidated before the Court ever lifted the stay, that was a gamble they took.”)
- The Bureau’s repeal did not create an inconsistency with the Bureau’s cost-benefit analysis of the payments provisions because the Bureau did that analysis using as a baseline the regulatory regime that existed before the Rule when the underwriting provisions were not in place.
- There is no inconsistency between the abusiveness standard that the Bureau rejected in its repeal of the Rule’s underwriting provisions and the standard it used in adopting the payments provisions because the Bureau did not use the rejected individualized risk standard when it concluded that consumers lack understanding of the risks of repeated withdrawal attempts.
- Case law requires that in determining whether the Bureau acted in a manner that is arbitrary and capriciously in promulgating the payments provisions, the court must be highly deferential to the Bureau. The Bureau reasonably determined that the payment withdrawals practice prohibited by the payments provisions met the Dodd-Frank standards for unfair and abusive acts or practices.
- The payments provisions do not establish a usury limit in violation of Dodd-Frank because they do not prohibit lenders from charging whatever interest rate they wish. The payments provisions also do violate the Dodd-Frank provision that prohibits the Bureau from making public policy considerations the primary basis for an unfairness determination because its unfairness finding was based on extensive evidence showing that the repeated withdrawals practice caused substantial injury that consumers could not avoid and that was not outweighed by countervailing benefits.
- The Bureau reasonably considered the payments provisions’ costs and benefits. Because the plaintiffs’ claim that consumers will face additional interest as a result of the provisions’ timing requirements for payment notices is incorrect, that was not a cost that the Bureau could or should have considered. There was also no need for the Bureau to consider the plaintiffs claim that the payments provisions create a greater likelihood that a loan will enter collections sooner because the Bureau is not required to consider every possible cost. Even if the plaintiffs’ claim is true, that cost is not significant because the alternative is repeated withdrawal attempts that cause consumers to incur more fees.
- The Bureau’s denial of a petition for a rulemaking to amend the payments provisions to exclude debit-card transactions was not arbitrary and capricious because the petition did not cite any new facts or changed circumstances that might call into doubt the basis for the Bureau’s initial decision not to exclude such transactions. In addition, there is no basis to second-guess the Bureau’s decision to prioritize other items on its agenda over the petition’s request and, even if the plaintiffs demonstrate that the denial was arbitrary, the appropriate judicial remedy is to order the Bureau to reconsider the petition and respond again.
- No constitutional defects remain. The Bureau’s funding is authorized by Congress as required by the Appropriations Clause. The Bureau’s UDAAP authority is a proper delegation of authority by Congress because Congress provided an “intelligible principle” guiding the Bureau’s use of that authority through the definitions set forth in Dodd-Frank.
Under the scheduling order entered by the court, the trade groups must file their reply in support of their motion for summary judgment and opposition to the Bureau’s cross-motion for summary judgment by November 20. The Bureau must file its reply in support of its cross-motion by December 18.