The National Association for Latino Community Asset Builders, represented by Public Citizen and the Center for Responsible Lending, filed a lawsuit against the CFPB in D.C. federal district court seeking to overturn the CFPB’s July 2020 final rule (2020 Rule) that rescinded the ability-to-repay provisions in its 2017 final payday/auto title/high-rate installment loan rule (2017 Rule).  The 2020 Rule left the 2017 Rule’s payment provisions in place.

The principal allegations regarding the 2020 Rule made by the plaintiff in its complaint include the following:

  • The assertion that the ability-to-repay provisions would eliminate most payday loans fails to take into account the ways in which the 2017 Rule’s quantitative estimates of its impact on lenders were overstated, “including because lenders were likely to change their product offerings to make loans affordable to more consumers or offer loan products not covered by the rule.”
  • The assertion that a reduction in “no-underwriting lending corresponds to harmful reductions” in consumer choice and access is not supported because it fails to account for the harm that consumers experience from unaffordable loans.
  • The new “robust and reliable” evidentiary standard adopted by the CFPB for determining whether no-underwriting lending is unfair and abusive unreasonably favors industry.
  • The conclusion that the 2017 Rule’s record lacked “robust and reliable” evidence to support a finding that no-underwriting lending is unfair because its harms are not “reasonably avoidable” rests on an unreasonable interpretation of Dodd-Frank’s “reasonable avoidable” criterion.
  • No reasonable explanation was provided for the conclusion that the 2017 Rule’s record lacked “robust and reliable” evidence to support a finding that the no-underwriting lending is abusive because it takes unreasonable advantage of consumers’ lack of understanding of material risks and inability to protect their interests.
  • The proposal of the 2020 Rule used vague and confusing terms that did not allow the public to comment meaningfully on the CFPB’s proposed evidentiary standard or all of its interpretations or applications of the Dodd-Frank Act legal standards.  The 2020 Rule relies on data, rationales, assertions, and legal analysis that were not discussed in the proposal and that could not have been anticipated by interested parties.

Based on these allegations, the plaintiff claims that the 2020 Rule violates the Administrative Procedure Act because it is “arbitrary, capricious, or an abuse of discretion,” “not in accordance with law,” and adopted “without observance of procedure required by law.”

As noted above, the 2020 Rule left the 2017 Rule’s payments provisions unchanged.  The validity of the payments provisions, which were ratified by Director Kraninger, is before a Texas federal district court in the lawsuit filed by industry trade groups challenging the 2020 Rule.  Both sides have filed motions for summary judgment and briefing is scheduled to be completed next month.  Among the arguments made by the trade groups is that the entire 2017 Rule was invalid because, when the rule was adopted, the CFPB was led by a Director who was unconstitutionally insulated from removal by the President.  As a result, the CFPB could move to stay the D.C. lawsuit pending a decision in the Texas lawsuit on the 2017 Rule’s validity or to change the venue of the D.C. lawsuit to Texas.