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 State of Oklahoma has filed an amicus brief in support of the motion to dismiss filed by four online tribal lenders sued by the CFPB for alleged Consumer Financial Protection Act and Truth in Lending Act violations.  The CFPB’s lawsuit was originally filed in an Illinois federal district court and subsequently transferred to federal district court in Kansas.

The CFPB’s complaint alleges that the lenders engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by attempting to collect loans that were purportedly void or uncollectible in whole or in part under state law.  The CFPB asserts that the loans are void or uncollectible in whole or in part as a matter of state law because the lenders charged  interest at rates that exceeded state usury limits and/or failed to obtain required state licenses.  The CFPB alleges that the defendants’ efforts to collect amounts that consumers did not owe under state law are “unfair,” “deceptive” and “abusive” under the CFPA as a matter of federal law.  The CFPB also alleges CFPA violations by the defendants based on their alleged failure to disclose the APR as required by TILA in advertisements and when providing information orally in response to telephone inquiries.

This is not the CFPB’s first attempt to transform alleged violations of state law into CFPA UDAAP violations.  However, as we observed when the complaint was filed, the CFPB’s legal position is far more aggressive than it was in its past cases and represents a frontal attack on all forms of tribal lending.  In this case, the CFPB acknowledged that the four lenders are owned by a federally-recognized Indian tribe and thus are tribal entities (and not merely tribal members).  Further, the complaint does not allege that non-tribal parties were the “true lenders” or attempting to collect interest on their own account.

In their motion to dismiss, the lenders argue that as “arms of the tribe,” they are immune from suit under the CFPA and TILA, the CFPB has no authority to enforce state law, and the loans are governed by tribal law. (The CFPB’s complaint alleges that the lenders’ loan agreements contained a tribal choice-of-law provision.)

In its amicus brief, Oklahoma agrees with the lenders’ position that they are immune from suit under the CFPA and TILA.  In addition to questioning the CFPB’s constitutionality, Oklahoma asserts that it “is especially alarmed that the CFPB claims jurisdiction over States and State entities in the same breath as it claims authority over Indian tribes.”  It argues that the CFPB’s position “is without textual support, bad policy, and contrary to our system of federalism and separation of powers.”  According to Oklahoma, if the CFPB’s position is correct, it would mean that “Oklahoma operates a number of agencies that the CFPB may now regulate, investigate, and coerce in the same way the CFPB is investigating Defendants as arms of Indian tribes.”

In a new lawsuit filed in an Illinois federal district court, the CFPB alleges that four online tribal lenders engaged in unfair, deceptive, and abusive acts or practices in violation of the Consumer Financial Protection Act by attempting to collect loans that were purportedly void or uncollectible in whole or in part under state law.

The CFPB’s complaint alleges that the lenders are owned and incorporated by a federally-recognized Indian tribe located in California.  According to the complaint, the defendants’ loan agreements contained a governing law provision stating that the loans were made and accepted on tribal lands and governed by tribal law regardless of where the borrower resided at the time the loan was requested.  However, the CFPB claims that: the defendants have no storefront on tribal land to originate loans in person; very few, if any, consumers who signed loan agreements did so on tribal lands; and the majority of the people who work on the defendants’ behalf work in Kansas.

The CFPB asserts that the loans are void or uncollectible in whole or in part as a matter of state law because the lenders charged  interest at rates that exceeded state usury limits and/or failed to obtain required state licenses.  The CFPB alleges that the defendants’ efforts to collect amounts that consumers did not owe under state law are “unfair,” “deceptive” and “abusive” under the CFPA as a matter of federal law.  The CFPB also alleges CFPA violations by the defendants based on their alleged failure to disclose the APR as required by TILA in advertisements and when providing information orally in response to telephone inquiries.

This is not the first time the CFPB has attempted to “piggy-back” alleged violations of state law into CFPA “UDAAP” violations.  However, in the new case, the CFPB acknowledges that the lenders were tribal entities (and not merely a tribal member).  Further the complaint does not allege that non-tribal parties were the “true lenders” or attempting to collect interest on their own account.  Thus, the CFPB’s legal position in the new case is far more aggressive than it was in its past cases.  Indeed, the new case represents a frontal attack on all forms of tribal lending.

 

 

Briefing has now been completed in CFPB v. Great Plains Lending, LLC, et al., the case before the U.S. Court of Appeals for the Ninth Circuit in which three tribally-affiliated payday lenders are challenging the CFPB’s authority to issue civil investigative demands (CIDs) to entities that are arms of sovereign tribes.

Last July, a California federal court rejected the lenders’ arguments that (1) as arms of sovereign tribes, they were “sovereigns” and therefore were not “persons” to whom the CFPB can issue CIDs under the Consumer Financial Protection Act, and (2) the CIDs were barred by tribal sovereign immunity.  The court did agree, however, to the lenders’ request for a stay pending their appeal to the Ninth Circuit.

Briefs have been filed with the Ninth Circuit by the lenders and the CFPB, and the lenders have also filed a reply brief.

Last Friday, the CFPB replied to the arguments made by three tribally-affiliated payday lenders in opposition to the CFPB’s petition in California federal court seeking to enforce the civil investigative demands (CIDs) issued by the CFPB to the lenders.  A hearing on the petition was scheduled for yesterday.   

The lenders argued that, as arms of sovereign tribes, they are not subject to the CFPB’s investigative authority.  According to the lenders, they are “sovereigns” and therefore presumptively are not “persons” to whom the CFPB can issue CIDs under the Consumer Financial Protection Act (CFPA).  The lenders contended that they are instead within the CFPA’s definition of “State,” and because Congress intended “States” to be co-regulators with the CFPB rather than regulated entities, the CFPB cannot overcome the presumption that Congress did not intend to include sovereign entities within the definition of “person.” 

In its reply, the CFPB argued that, even if they are arms of tribes and within the definition of “State,” the lenders are still “companies” that fall within the definition of “persons” subject to CIDs under the CFPA.  According to the CFPB, the interpretative presumption found in case law that the term “person” does not include a “sovereign” has never been applied by the U.S. Supreme Court or the Ninth Circuit to determine whether a federal agency can apply a federal law of general applicability to a tribal business, even a law that applies to “persons.”  Instead, the CFPB argued that in making such a determination, the Ninth Circuit and other courts have applied a framework under which a law of general applicability will be presumed to apply to tribal entities unless one of three exceptions are met.  Those exceptions, as listed by the CFPB, are:
(1) applying the law would interfere with a tribe’s right of self-governance on internal matters,
(2) applying the law would abrogate treaty rights, or (3) there is proof that Congress intended to exempt tribes. 

According to the CFPB, the lenders are subject to its authority under the CFPA to issue CIDs because it is a statute of general applicability (and is silent on its applicability to Indian tribes) and none of the three exceptions apply.  In response to the lenders’ additional argument that the CIDs are barred by tribal sovereign immunity, the CFPB argued that tribes do not have sovereign immunity from suits by the federal government.

We recently reported that the CFPB has filed a petition in U.S. District Court for the Central District of California seeking to enforce the civil investigative demands (CIDs) it issued in June 2012 to three tribally-affiliated payday lenders.  A hearing on the petition has been scheduled for April 28.

In their joint memorandum of law filed in opposition to the CFPB’s petition, the lenders argue that, as arms of sovereign tribes, they are not subject to the CFPB’s investigative authority.  The Consumer Financial Protection Act (CFPA) authorizes the CFPB to issue CIDs to “any person” and to petition to enforce a CID when “any person” fails to comply.  Citing to decisions of the U.S. Supreme Court and other federal courts, the lenders argue that “sovereigns” are presumptively not “persons” within the meaning of the CFPA.

According to the lenders, the exclusion of “sovereigns” from the term “person” also extends to arms of Indian tribes such as the lenders.  They further argue that because federally recognized Indian tribes are expressly included within the CFPA’s definition of “State,” and Congress intended “States” to be co-regulators with the CFPB rather than regulated entities, the CFPB cannot overcome the presumption that Congress did not intend to include sovereign entities within the definition of “person.”

The lenders make the additional arguments that the CIDs are barred by the lenders’ sovereign immunity, do not provide adequate notice of the purpose and scope of the CFPB’s investigation, and are overbroad.

The CFPB recently filed a petition in U.S. District Court for the Central District of California seeking to enforce the civil investigative demands (CIDs) it issued in June 2012 to three tribally-affiliated payday lenders.  A hearing on the petition has been scheduled for April 28.

In September 2013, the CFPB issued an order denying the lenders’ petition requesting that the CFPB set aside the CIDs.  The order rejected the lenders’ argument that they were not subject to the CFPB’s CID authority because they are affiliated with, and “arms” of, Indian tribes.  The order also directed the lenders to produce all responsive documents, items and information covered by the CIDs by October 17, 2013. 

In its petition seeking to enforce the CIDs, the CFPB alleges that although it subsequently granted the request of the lenders’ counsel for an extension of the compliance deadline until October 24, 2013, the lenders have not complied with the CIDs.

As industry and consumers await the results of the CFPB’s arbitration study, the FTC became the latest federal agency to weigh in on consumer arbitration issues.  Recently, at the invitation of the Seventh Circuit, the FTC filed an amicus brief supporting a class action lawsuit brought by consumers challenging a tribal payday lender’s practice of requiring them to submit to arbitration at a Native American reservation.  The FTC argued that the lender’s arbitration provision should be invalidated as unfair and unconscionable for reasons that included the expense involved in traveling to the reservation to participate in arbitration or, if the consumer opted out, a proceeding in tribal court. 

Last year, the DOJ filed an amicus brief in the U.S. Supreme Court in American Express Co. v. Italian Colors Restaurant in support of the merchants who were challenging the class action waiver in American Express’ arbitration agreement.  (The Supreme Court ruled against the merchants in a 5-3 decision.) 

It will be interesting to see if federal agencies continue to address consumer arbitration issues given the lack of success the plaintiffs’ bar has had in challenging arbitration provisions during the past few years.

On September 26, the CFPB issued a 10-page order denying a petition filed jointly by three tribal payday lenders that asked the CFPB to set aside the civil investigative demands (CIDs) the lenders received from the CFPB.  The order describes the lenders as “limited liability companies organized and chartered under the laws of federally recognized Indian tribes,” with each lender “created by resolution of its respective tribe in or about 2011” and “wholly owned by that tribe.” 

In the order, the CFPB rejects the lenders’ argument that they are not subject to the CFPB’s CID authority because they are affiliated with, and “arms” of, Indian tribes.  According to the CFPB,  the lenders failed to show that the CFPB’s attempt to apply the Consumer Financial Protection Act (Title X of Dodd-Frank) to them fell within an exception to the general rule that tribes and tribally-affiliated entities are subject to federal laws of general applicability.  The CFPB also rejected the lenders’ argument that tribal sovereign immunity protected them from the CIDs on the grounds that neither Indian tribes nor purported “arms” of tribes have sovereign immunity against suits by the federal government. 

The lenders had also argued that the CIDs should be set aside because they did not provide adequate notice of the purpose and scope of the CFPB’s investigation and made requests that were “vague, overly broad, and unduly burdensome.”  While the CFPB found these claims to be “baseless,” it indicated that the lenders were “welcome to continue to discuss, and to seek to resolve, issues about the scope and burden of individual interrogatories and document requests with the Bureau’s enforcement team.”  The order directs the lenders to produce  all responsive documents, items and information covered by the CIDs within 21 days.

Having previously announced partnerships with the Cities of Chicago and Newark, the CFPB  has now announced its first partnership with a tribal government—the Navajo Nation.   A Memorandum of Understanding between the CFPB and the Navajo Nation Department of Justice addresses the mechanics of the information sharing, such as how the CFPB will respond to third party requests for tribal information, how the Navajo Nation DOJ can request information from the CFPB, and the confidentiality of shared information.

Except for the statement that the partnership is intended to support “[the Bureau’s] work to prevent harmful practices that target Native American consumers,” the CFPB’s announcement provides no specifics about the nature of the information expected to be shared.  In a recent blog post about the settlement in Cobell v. Salazar, the CFPB indicated that its enforcement staff would be “on the watch for scams and other harmful financial products that target Native Americans” and asked consumers and tribal leaders to “[r]eport problems with payday loans, settlement anticipation loans, auto loans, or anything bought with credit.”