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.

 

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.

 

The 60-day period during which the Senate could pass a resolution under the Congressional Review Act disapproving the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) with only a simple majority appears to have expired yesterday.  Although the Senate’s failure to pass a CRA resolution is disappointing because the CRA would have provided the “cleanest” vehicle for overturning the Payday Rule, we were always doubtful that there would be 51 votes in the Senate to pass a CRA resolution.

The focus of efforts to undo the Payday Rule will now be the CFPB’s reopened rulemaking and the Texas lawsuit filed by two trade groups challenging the Payday Rule.  In its Spring 2018 rulemaking agenda, the CFPB indicated that it expects to issue a Notice of Proposed Rulemaking to revisit the Payday Rule in February 2019.

In the meanwhile, all eyes will be on the Texas lawsuit to see how the CFPB responds and, in particular, whether it will agree with most, if not all, of the plaintiffs’ allegations.  The CFPB must file its answer by June 11.

 

Two trade groups, the Consumer Financial Service Association of America, Ltd. and the Consumer Service Alliance of Texas, have filed a lawsuit against the CFPB in a Texas federal district court challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The plaintiffs seek an order and judgment holding the Payday Rule unlawful and enjoining and setting aside the Payday Rule.  The case has been assigned to Judge Lee Yeakel, who was nominated by President George W. Bush in 2003.

The lawsuit appears to be a third bite at the apple in that it represents a third possible route for overturning the Payday Rule.  More specifically, the filing appears to reflect industry concern about the viability of overturning the rule through a resolution under the Congressional Review Act (CRA) or the reopening of rulemaking by the CFPB.

The complaint alleges that the Payday Rule is unlawful for the following reasons:

  • The CFPB’s structure is unconstitutional because of the President’s inability to remove the CFPB Director other than for-cause and the funding of the CFPB outside of the normal appropriations process
  • The Consumer Financial Protection Act (CFPA) unconstitutionally delegates legislative power to the CFPB by granting it “legislative authority” to prescribe rules identifying as unlawful unfair, deceptive, or abusive acts or practices and not providing “an intelligible principle” that the CFPB must follow in exercising such authority
  • The Payday Rule exceeds the CFPB’s statutory authority for reasons that include:
    • The Final Rule’s identification of unfair and abusive lending practices conflicts with the CFPA limitations on the CFPB’s authority to declare an act or practice unfair or abusive
    • The Final Rule violates the CFPB prohibition on the CFPB’s establishment of a usury limit because it “determines the legal status of certain covered loans based solely on their interest rates”
    • The CFPB does not have the authority to impose an ability-to-repay requirement on the loans covered by the Payday Rule
  • The Payday Rule is arbitrary and capricious in violation of the Administrative Procedure Act (APA) because the CFPB’s unfairness and abusive determinations “are unsupported by substantial evidence and reflect a clear error in judgment”
  • The CFPB’s cost-benefit analysis of the Payday Rule does not satisfy the requirements of the CFPA for such an analysis
  • The CFPB failed to satisfy various procedural requirements in promulgating the Payday Rule including:
    • The APA notice and comment rulemaking process because “the history of the rulemaking demonstrates that the Bureau will not consider or evaluate empirical studies or evidence that diverges from the Bureau’s pre-determined decision that payday lending and title lending are harmful and must be burdened by draconian regulations”
    • The CFPB has “reduced the elaborate rulemaking process to little more than a sham” because it “has largely allowed outside groups opposed to payday lending to drive this rulemaking, and has not adequately disclosed its reliance on these groups”
    • The CFPB failed to adequately consider the Payday Rule’s impact on small businesses as required by SBREFA
    • The CFPB failed to give adequate consideration to the “over one million comments [it received] from consumers who opposed the proposed rule”

Resolutions under the Congressional Review Act (CRA) to override the Payday Rule have been introduced in the House and Senate.  In January 2018, the CFPB announced that it intends to engage in a rulemaking process to reconsider the Payday Rule pursuant to the APA.  The Payday Rule became “effective”on January 16, 2018.  However, 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.

It is doubtful that there are 51 votes in the Senate to pass a CRA resolution.  Adoption of a new rule through a reopened rulemaking could take too long to accomplish because of the many APA regulatory hoops that the CFPB would have to jump through.  In addition, consumer advocacy groups would likely file a lawsuit against the CFPB challenging any new rule.

Perhaps the most important question with respect to the Texas lawsuit is how the CFPB will respond.  The CFPB’s position under the Trump Administration on the constitutional issues is uncertain.  While President Trump wanted the CFPB to be held unconstitutional when Richard Cordray was Director so that he could be removed without cause, the President no longer needs such authority.  Moreover, the President might no longer want to have such authority because it would potentially enable a Democratic President to remove whoever President Trump eventually appoints as Director.

On the other hand, based on Mr. Mulvaney’s recent recommendation that the CFPA be amended to give the President more control over the Director, some observers believe that the CFPB would agree with the complaint’s allegation that the CFPB is unconstitutional.  In addition, Mr. Mulvaney’s decision to reopen the rulemaking indicates that he has grave concerns about the Payday Rule.

All in all, we believe that the CFPB will likely file an answer to the complaint stating that it agrees with most, if not all, of the complaint’s allegations.  Should that happen, the plaintiffs would be well-positioned to file a motion for judgment on the pleadings.

A motion for judgment on the pleadings is ordinarily granted when the complaint and answer, by themselves, reveal that there are no material issues of fact to be resolved and that a party is entitled to judgment as a matter of law.  However, it is unclear whether the court would be obligated to grant a motion by the plaintiffs for judgment on the pleadings or could exercise independent judgment about the legal issues raised in the lawsuit.

It also seems likely that certain consumer advocacy groups or Democratic state attorneys general will seek to intervene as defendants in order to defend the lawsuit.  The plaintiffs (and perhaps the CFPB) would likely oppose such intervention and it is premature at this point to speculate as to how the court would rule on intervention.

While it is also noteworthy that the lawsuit was filed in federal court in Texas rather than in D.C., the reason for the plaintiffs’ choice of Texas seems obvious—they needed to initiate the lawsuit in a federal circuit that has not already ruled on their constitutional challenge.  The D.C. Circuit has already concluded in PHH that the CFPB is constitutional.  The plaintiffs undoubtedly hope that the Fifth Circuit will decide the constitutional issue differently, thus creating a conflict with the D.C. Circuit that the U.S. Supreme Court would likely resolve.  Also, unlike the D.C. Circuit, the Fifth Circuit is known for being one of the more conservative circuits in the country

 

A group of Democratic senators (joined by two independent Senators) has sent a letter to Leandra English and Mick Mulvaney urging them to abandon any efforts by the CFPB to reconsider its final payday/auto title/high-rate installment loan rule (Payday Rule).

In January 2018, the CFPB announced that it intends 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.  The Senators state that they “understand that the CFPB is delaying the rule by granting waivers to companies who would otherwise be taking steps to begin complying with the rule, and that the Bureau may be offering the payday loan industry an opportunity to undermine the rule entirely.”  According to the Senators, such actions are “further efforts to undermine the implementation of this important consumer protection rule.”

The Senators also state that they are “troubled by the CFPB’s enforcement actions related to payday lending.”  Their letter references the CFPB’s decision to end a lengthy investigation into a payday lending company and its dismissal of a federal court lawsuit filed by the CFPB against four online tribal lenders.

We previously observed that the lawsuit represented another attempt by the CFPB to transform alleged violations of state law into CFPA UDAAP violations.  More specifically, the CFPB claimed that because the lenders charged interest at rates that exceeded state usury limits and/or failed to obtain required state licenses, the loans were void or uncollectible in whole or in part as a matter of state law and the defendants’ efforts to collect amounts that consumers did not owe under state law were “unfair,” “deceptive,” and “abusive” under the CFPA as a matter of federal law.

 

The American Banker has reported that last week, Senator Lindsey Graham introduced a joint resolution under the Congressional Review Act (CRA) to override the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The CRA is the vehicle used by Congress to overturn the CFPB’s arbitration rule in a party-line vote.

In December 2017, a bipartisan joint CRA resolution to override the Payday Rule was introduced in the House and, in January 2018, the CFPB announced that it intends to engage in a rulemaking process to reconsider the Payday Rule pursuant to the Administrative Procedure Act (APA).

To be eligible for the special Senate procedure that allows a CRA resolution to be passed with only a simple majority, the Senate must act on the resolution during a period of 60 “session days” which begins on the later of the date when the rule is received by Congress and the date it is published in the Federal Register.  While the deadline for voting on a CRA resolution cannot be definitively determined in advance because of uncertainty as to which days going forward will count as “session days,” it appears the deadline will occur by mid-May.

As we previously commented, to change the Payday Rule pursuant to the APA, the CFPB will have to follow the APA’s time-consuming notice and comment procedures.  In addition, since any changes made by the CFPB are likely to be challenged in litigation, the CFPB will need to successfully defend a revised rule or its withdrawal of the existing rule.

Given the hurdles created by the rulemaking process, the CRA provides a “cleaner” and quicker vehicle for overturning the final rule.  However, there is no assurance that the majorities needed to override the Payday Rule under the CRA can be assembled in both the House and the Senate.  Since the Senate passed the CRA resolution overturning the arbitration rule, the Republican’s majority has narrowed to 51-49, and Senator John McCain has been absent from Congress for health reasons.

According to Politico, CFPB Acting Director Mick Mulvaney will testify before the House Financial Services Committee on April 11, 2018.  Undoubtedly, he will be asked about the CFPB’s plans to revisit the Payday Rule.

 

The CFPB announced today that it intends to engage in a rulemaking process to reconsider, pursuant to the Administrative Procedure Act, its final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Rule”).  The announcement fully accords with our expectation that the Payday Rule will never see the light of day in its current form.

If it were to go into effect, the Payday Rule would largely eliminate the availability of payday loans to the public.  In this regard, the Payday Rule reflected former CFPB Director Cordray’s hostility to payday lending and his failure to seriously consider how consumers who rely upon the product would be impacted by its elimination.  It was adopted on a crash basis shortly before Director Cordray’s resignation and largely disregarded over 1,000,000 comments from consumers articulating the critical benefits of payday loans.

To our mind, it was inevitable that Director Cordray’s successor would wish to re-evaluate the costs and benefits of the Payday Rule.  We think it highly likely that, at the end of the day, the new Director (whether Mick Mulvaney in an acting capacity or the as-yet-to-be-appointed permanent successor to former Director Cordray) will repeal the Payday Rule while he or she considers other options that can preserve the product and limit the potential for consumer injury.

Today’s announcement is good news for the millions of consumers who rely upon payday and title loans to meet their financial needs (and, of course, to the payday and title lending industries).

A bipartisan group of lawmakers has introduced a joint resolution under the Congressional Review Act to override the CFPB’s final payday/auto title/high-rate installment loan rule.  House members sponsoring the bill consist of three Democrats and three Republicans.  The CRA is the vehicle used by Congress to overturn the CFPB’s arbitration rule.

The CFPB’s final payday loan rule was published in the Federal Register on November 17.  The regulation is effective 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.  The deadline to submit an application for preliminary approval to be a registered information system is April 16, 2018.

To be eligible for the special Senate procedure that allows a CRA disapproval resolution to be passed with only a simple majority, the Senate must act on the resolution during a period of 60 “session days” which begins on the later of the date when the rule is received by Congress and the date it is published in the Federal Register.  For purposes of the CRA, a rule is considered to have been “received by Congress” on the later of the date it is received in the Office of the Speaker of the House and the date of its referral to the appropriate Senate committee.  The payday loan rule was received by the Speaker of the House on November 13 and referred to the Senate Banking Committee on November 15.  (Due to uncertainty as to which days going forward will count as “session days,” the deadline for voting on a CRA resolution cannot be definitively determined in advance.)

In addition to the CRA resolution, we expect an industry lawsuit challenging the rule to  be filed within the next few weeks.  According to media reports, the lawsuit is expected to be filed by the Community Financial Services Association of America.  Also, Mick Mulvaney, President Trump’s designee as CFPB Acting Director, is reported to be reviewing the payday loan rule as well as other CFPB actions to determine what his next steps will be.