The CFPB announced that it has settled a lawsuit that it filed in 2014 in a Missouri federal district court alleging that the defendants engaged in unlawful online payday lending schemes.  The CFPB had sued Richard Moseley Sr., two other individuals, and a group of interrelated companies, some of which were directly involved in making payday loans and others that provided loan servicing and processing for such loans.  The CFPB alleged that the defendants had engaged in deceptive and unfair acts or practices in violation of the Consumer Financial Protection Act as well as violations of the Truth in Lending Act and the Electronic Fund Transfer Act.  According to the CFPB’s complaint, the defendants’ unlawful actions included providing TILA disclosures that did not reflect the loans’ automatic renewal feature and conditioning the loans on the consumer’s repayment through preauthorized electronic funds transfers.  A receiver was subsequently appointed for the companies.

In November 2017, Mr. Moseley was convicted by a federal jury on all criminal counts in an indictment filed by the DOJ, including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and the TILA.  In its indictment of Mr. Moseley, the DOJ claimed that the loans made by the lenders controlled by Mr. Moseley violated the usury laws of various states that effectively prohibit payday lending and also violated the usury laws of other states that permit payday lending by licensed (but not unlicensed) lenders.  The indictment charged that Mr. Moseley was part of a criminal organization under RICO whose crimes  included the collection of unlawful debts.

Mr. Moseley was charged with committing a criminal violation of TILA by “willfully and knowingly” giving false and inaccurate information and failing to provide information required to be disclosed under TILA.  The DOJ’s TILA count was particularly noteworthy because criminal prosecutions for alleged TILA violations are very rare.  The other counts against Mr. Moseley included wire fraud and conspiracy to commit wire fraud by making loans to consumers who had not authorized such loans.  Mr. Moseley has appealed his conviction.

Pursuant to the Stipulated Final Judgment and Order (Order), a judgment is entered in favor of the Bureau in the amount of $69,623,658 “for the purpose of redress” to consumers.  The Order states that this amount represents the Defendants’ gross profits from January 1, 2008 through August 1, 2018.  The Order extinguishes all consumer debt related to loans originated by the defendants during that period.

Based on the defendants’ financial condition, the Order suspends the full amount of the judgment subject to the defendants’ forfeiture of various assets and “the truthfulness, accuracy, and completeness” of the financial statements and supporting documents that the defendants submitted to the Bureau.  According to the CFPB’s press release, the forfeited assets, which consist of bank accounts and other assets, are worth approximately $14 million. The Order also requires the defendants to pay a $1 civil money penalty.

The Order permanently bans the defendants from marketing, originating, collecting, or selling consumer credit or debt, permanently enjoins them from continuing to engage in the unlawful conduct alleged in the CFPB’s lawsuit, and prohibits them from disclosing any customer information that was obtained in connection with the loans made by the defendants.

 

 

A Texas federal court has denied 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 asked the court to reconsider its June 12 order granting the stay of the trade groups’ lawsuit challenging the Payday Rule that the trade groups had sought in a motion filed jointly with the CFPB but denying the stay of the Payday Rule’s August 19, 2019 compliance date that was also requested in the joint motion.

In light of the court’s denial of the reconsideration motion, we hope that the CFPB will move quickly to issue a proposal to delay the compliance date pursuant to the Administrative Procedure Act’s notice-and-comment procedures.  The CFPB has already set forth the rationale for a delay of the compliance date in its response in support of the motion for reconsideration.  As a result, it should be able to issue a proposal providing for a delay expeditiously to give the Bureau additional time to revisit the Payday Rule and engage in substantive rulemaking, currently anticipated for February 2019 (according to the CFPB’s latest rulemaking agenda).

 

The CFPB has filed a response to the motion filed by four consumer advocacy group seeking leave to file an amicus brief opposing the motion of two trade groups for reconsideration of the Texas federal court’s June 12 order denying a stay of the compliance date for the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The CFPB previously filed a response in support of the trade groups’ motion for reconsideration.  The same advocacy groups had filed an amicus brief opposing the joint motion filed by the CFPB and two trade groups seeking a stay of the compliance date.

The joint motion sought the stay of the compliance date pursuant to Section 10(d) of the Administrative Procedure Act, 5 U.S.C. Section 705.  In their initial 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 has argued 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.”

In addition to renewing their argument that the trade groups have not satisfied the four factors used to assess requests for Section 705 stays, the advocacy groups devoted most of their proposed new amicus brief to their argument that a stay of the compliance date under Section 705 is not appropriate where the litigation is stayed.  Section 705 allows a court reviewing an agency’s action to postpone the effective date of such action “to the extent necessary to prevent irreparable injury… pending conclusion of the review proceedings.”

While taking no position on the motion filed by the advocacy groups to for leave to file another amicus brief, the CFPB again rejects the advocacy groups’ position that Section 705 cannot be invoked to stay the Payday Rule’s compliance date if the trade groups’ lawsuit has been stayed.  It argues that nothing in Section 705 “suggests that [the] provision can only be invoked in circumstances where litigation is certain to result in a final judgment on the merits, rather than being resolved by settlement or other means.”

The CFPB also rejects the advocacy groups’ position that the trade groups have not satisfied the four factors used to assess requests for Section 705 stays.  The advocacy groups had asserted that the trade groups were highly unlikely to succeed on the merits of their claims about the evidence on which the Payday Rule’s finding of unfairness and abusiveness is based because, in issuing the Payday Rule, the CFPB considered and rejected those arguments.  The CFPB states that the fact that it was previously aware of such concerns about the evidence underpinning the Payday Rule “is hardly dispositive of the merits of Plaintiffs’ claims, let alone whether they made the preliminary showing of a substantial case on the merits.”

 

The four consumer advocacy groups that filed an amicus brief opposing the joint motion filed by the CFPB and two trade groups seeking a stay of the compliance date for the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) have now filed a motion seeking leave to file an amicus brief opposing the trade group’s motion for reconsideration of the Texas federal court’s June 12 order denying the stay.  The CFPB filed a response in support of the trade groups’ motion for reconsideration.

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 initial 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 has argued 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.”

While renewing their argument that the trade groups have not satisfied the four factors used to assess requests for Section 705 stays, the advocacy groups devote most of their proposed new amicus brief to their argument that a stay of the compliance date under Section 705 is not appropriate where the litigation is stayed.  Section 705 allows a court reviewing an agency’s action to postpone the effective date of such action “to the extent necessary to prevent irreparable injury… pending conclusion of the review proceedings.”

The advocacy groups, citing a 1974 U.S. Supreme Court decision, argue that Section 705 was primarily intended to reflect a doctrine that recognized a court’s limited authority to stay an agency action from which an appeal was taken, pending the determination of that appeal.  According to the advocacy groups, granting a stay of the compliance date, “would turn [that] doctrine on its head” because by claiming they need both a stay of the litigation while the CFPB reviews the Payday Rule and a section 705 stay of the compliance date, “plaintiffs make clear that they seek a stay pending agency reconsideration, not this Court’s consideration.” (emphasis in original)  The advocacy groups reject the CFPB’s argument that the requirement in Section 705 that the stay must be necessary to prevent harm “pending conclusion of the review proceedings” can be satisfied “by a lawsuit stayed at the parties’ request.”

In response to the CFPB’s invocation of “uncertainties and delays inherent in the notice-and-comment rulemaking procedures,” the advocacy groups argue that Section 705 “provides no authority for an end-run around APA requirements that an agency finds inconvenient.”

 

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.

 

We have previously blogged about the industry challenge to the CFPB’s rule on payday/vehicle title/high rate installment loans.  The Plaintiffs’ have now filed an Unopposed Motion for Reconsideration and have advised that the CFPB intends to file a separate supporting memorandum.  In their Motion for Reconsideration, the Plaintiffs’ argue that a combined stay of litigation (previously approved by the Court) and stay of the Rules’ compliance dates (previously denied by the Court) –

would relieve the parties and the Court of the burdens of litigation that might not be needed, while at the same time protecting Plaintiffs’ members from having to comply with, and prepare for compliance with, an allegedly invalid rule….

But rather than grant or deny the motion in full, the Court’s order severed these two inextricably intertwined proposals. The order thereby granted a combination of relief that was not requested by the parties, and which undermines, rather than furthers, their agreed-upon solution to the dilemma discussed above. Staying the litigation while denying a stay of the Rule relieves the parties and the Court of the burdens of litigation, but it does so without relieving Plaintiffs of the need for litigation….  Thus, absent a stay of the compliance date, Plaintiffs will have no tenable option other than to file a motion for preliminary injunction (and a lift of the litigation stay).

(emphasis in original)

We fully subscribe to the views expressed in the Motion for Reconsideration.  However, we hope the CFPB is not putting all of its eggs in one basket and counting on the court to change its mind.  A second fallback approach—which we strongly recommend—is for the CFPB to engage in formal notice and comment rulemaking to extend the compliance deadline and provide breathing space for ensuing notice and comment rulemaking on the substance of the Rule.  We think the justification for such rulemaking, should it prove necessary, is compelling.

A Texas federal court has granted the stay of the lawsuit filed by two trade groups challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) requested in a joint motion filed by the trade groups and the CFPB but has denied the stay of the Payday Rule’s August 19, 2019 compliance date that was also requested in the joint motion.

The court did not provide the basis for its decision in the order ruling on the joint motion.  However, the court also granted the motion filed by four consumer advocacy groups seeking leave to file an amicus memorandum opposing the joint motion.

The joint motion had 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 in addition to the parties’ failure to satisfy the four-part test used to assess requests for Section 705 stays, 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.  According to the advocacy groups, the CFPB and trade groups were not seeking to maintain the status quo to protect against litigation uncertainties but rather to address uncertainties created by the CFPB’s decision to engage in rulemaking to reconsider the Payday Rule.  They described the joint motion as an attempt to “effect an end-run around the [APA’s notice-and-comment rulemaking procedures].”  (The trade groups filed a response in which they disputed the arguments made by the advocacy groups.)

In light of the court’s ruling on the joint motion, we hope that the CFPB will move quickly to stay the compliance date pursuant to the APA’s notice-and-comment procedures.

 

Four consumer advocacy groups have filed a motion seeking leave to file an amicus memorandum opposing the joint motion filed by the CFPB and two trade groups that seeks a stay of the compliance date for the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The joint motion, which was filed in the trade groups’ April 2018 lawsuit challenging the Payday Rule, also seeks a stay of the litigation for the duration of the CFPB’s rulemaking to reconsider the Payday Rule.

The four consumer advocacy groups are Public Citizen, Inc., Americans for Financial Reform Education Fund, Center for Responsible Lending, and National Consumer Law Center.  They assert in their motion that because the stay was sought jointly by the parties to the lawsuit, “the Court lacks the benefit of adversarial briefing on the parties’ request.”

The joint motion filed by the CFPB and trade groups seeks a stay of the Payday Rule’s compliance date pursuant to Section 10(d) of the Administrative Procedure Act, 5 U.S.C. section 705, which provides:

When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review.  On such conditions as may be required and to the extent necessary to prevent irreparable injury, the reviewing court … may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.

In the proposed amicus memorandum accompanying their motion, the consumer advocacy groups argue that Section 705 cannot be properly invoked by the CFPB and trade groups to stay the Payday Rule’s compliance date for the following reasons:

  • For the court to stay the compliance date while also staying the litigation is at odds with the purpose of Section 705 “to stay agency action for the purpose of maintaining the status quo during judicial review.”  The CFPB and trade groups are not seeking to maintain the status quo to protect against litigation uncertainties but rather to address uncertainties created by the CFPB’s decision to engage in rulemaking to reconsider the Payday Rule.  Section 705 “cannot properly be used as the basis for a stay where the parties are not litigating and have no intention to do so.”
  • The joint motion is an “attempt to jerry rig non-adversarial litigation to effect an end-run around the [Administrative Procedure Act’s] statutory requirements.”  An agency ordinarily can only delay a rule’s compliance date through the APA’s notice-and-comment rulemaking procedures.
  • The same four-part test used to assess requests for stays pending appeal applies to Section 705 stays.  The joint motion does not satisfy this test because:
    • Little effort was made to show any likelihood of plaintiffs’ success on the merits in their challenge to the Payday Rule
    • No showing was made that the plaintiffs would suffer irreparable injury absent a stay pending review, with no actual information provided “as to whether any individual member of the plaintiff associations intends to spend money on compliance with the Payday Rule before the date when this lawsuit—if it were litigated—could reasonably be expected to end.”
    • No consideration was given to the impact of their request on the CFPB, which would include “bind[ing] the agency and its next director, based on the request of an acting director, who only serves temporarily and at the pleasure of the president.” (emphasis included).
    • No analysis was provided of how a stay would impact the public interest, such as “the impact of a stay on the consumers who the Payday Rule intends to protect.”

The consumer advocacy groups’ motion states that the trade groups have indicated that they oppose the filing of the amicus brief and that the CFPB has indicated that it takes no position on whether the amicus brief should be filed.  We would therefore expect the trade groups to file a response opposing the motion.  Once the court rules on the consumer advocacy groups’ motion, the next step would be for the court to decide the joint motion for a stay either after a hearing or without holding a hearing.

 

The National Credit Union Administration has published a notice in the Federal Register proposing to amend the NCUA’s general lending rule to provide federal credit unions (FCU) with a second option for offering “payday alternative loans” (PALs).  Comments on the proposal are due by August 3, 2018.

In 2010, the NCUA amended its general lending rule to allow FCUs to offer PALs as an alternative to other payday loans.  For PALs currently allowed under the NCUA rule (PALs I), an FCU can charge an interest rate that is 1000 basis points above the general interest rate set by the NCUA for non-PALs loans, provided the FCU is making a closed-end loan that meets certain conditions.  Such conditions include that the loan principal is not less than $200 or more than $1,000, the loan has a minimum term of one month and a maximum term of six months, the FCU does not make more than three PALs in any rolling six-month period to one borrower and not more than one PAL at a time to a borrower, and the FCU requires a minimum length of membership of at least one month.

The proposal is a reaction to NCUA data showing a significant increase in the total dollar amount of outstanding PALs but only a modest increase in the number of FCUs offering PALs.  In the proposal’s supplementary information, the NCUA states that it “wants to ensure that all FCUs that are interested in offering PALs loans are able to do so.”  Accordingly, the NCUA seeks to increase interest among FCUs in making PALs by giving them the ability to offer PALs with more flexible terms and that would potentially be more profitable (PALs II).

PALs II would not replace PALs I but would be an additional option for FCUs.  As proposed, PALs II would incorporate many of the features of PALs I while making four changes:

  • The loan could have a maximum principal amount of $2,000 and there would be no minimum amount
  • The maximum loan term would be 12 months
  • No minimum length of credit union membership would be required
  • There would be no restriction on the number of loans an FCU could make to a borrower in a rolling six-month period, but a borrower could only have one outstanding PAL II loan at a time.

In the proposal, the NCUA states that it is considering creating an additional kind of PALs (PALs III) that would have even more flexibility than PALs II.  It seeks comment on whether there is demand for such a product as well as what features and loan structures could be included in PALs III.  The proposal lists a series of questions regarding a potential PALs III rule on which the NCUA seeks input.

The NCUA’s proposal follows closely on the heels of the bulletin issued by the OCC setting forth core lending principles and policies and practices for short-term, small-dollar installment lending by national banks, federal savings banks, and federal branches and agencies of foreign banks.  In issuing the bulletin, the OCC stated that it “encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers.”

 

The CFPB and the two trade groups that filed a lawsuit in April 2018 in a Texas federal district court challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) have filed a joint motion seeking a stay of the litigation for the duration of the CFPB’s rulemaking to reconsider the Payday Rule. The motion also seeks a stay of the Payday Rule’s compliance date and a waiver of the CFPB’s obligation to file an answer.  The two trade groups are the Consumer Financial Service Association of America, Ltd. and the Consumer Service Alliance of Texas.

In January 2018, the CFPB announced that it intended to engage in a rulemaking process to reconsider the Payday Rule pursuant to the Administrative Procedure Act.  Although the Payday Rule became “effective” on January 16, 2018, the compliance date for the rule’s substantive requirements and limits (Sections 1041.2 through 1041.10), compliance program/documentation requirements (Section 1041.12), and prohibition against evasion (Section 1041.13) is August 19, 2019.

In the joint motion, the CFPB and trade groups assert that the rulemaking “may result in repeal or revision of the Payday Rule and thereby moot or otherwise resolve this litigation or require amendments to Plaintiffs’ complaint.”  They also assert that a stay of the Payday Rule’s compliance date during the litigation’s pendency is necessary to prevent  irreparable injury, claiming that none of the expenditures necessary to comply with the Payday Rule would be compensable by money damages should the Payday Rule be invalidated or repealed.  The CFPB and trade groups ask the court to stay the compliance date until 445 days from the date of final judgment in the litigation to ensure sufficient time for compliance should the plaintiffs’ claims be unsuccessful.