CFPB Overcomes Payday Loan Rule Challenge | Goodwin
On August 31, 2021, the United States District Court for the Western District of Texas issued an opinion upholding the Consumer Financial Protection Bureau (CFPB) rule regulating payday loans. Community Financial Services Association of America, LTD., Et al. v. CFPB, Case No.1: 18-CV-00295 (WD TX.) (Community v. CFPB).
As a reminder, on November 17, 2017, the CFPB had issued the rule “on salary, vehicle title and certain high-cost installment loans” (rule). The rule included an underwriting provision, which prohibits lenders from making secured loans “without reasonably determining that consumers will have the capacity to repay the loans” and a payment provision, which prohibits some lenders from attempting to opt out. a consumer’s account after two failed withdrawal attempts without further authorization from the consumer. In 2020, the Supreme Court ruled that the CFPB leadership structure was unconstitutional. Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2192 (2020) (Seila Law). A few weeks after the Seila Law decision, the CFPB ratified the rule payments provision. 85 Fed. Reg. 4 1 905-02 (July 13, 2020).
Community c. CFPB was brought up on behalf of lenders and businesses affected by the Rule and ratification of the Rule. Community c. CFPB relied on Seila Law to present a direct challenge to the payment provision of the rule. Ultimately, the district court rejected all of the plaintiffs’ arguments as to why the payment arrangements should be set aside. The district court noted that the Supreme Court had ruled that “[Seila Law] maintenance to act does not mean that the actions taken by such an agent are void ab initio and must be undone. In addition, the district court ruled that the ratification of the rule was “valid and remedied the constitutional prejudice”. The plaintiffs also argued that one of its members had submitted a regulatory request to change the rule to exclude debit card payments from the payments provision, and the CFPB’s denial of this request was arbitrary. and capricious. The district court disagreed, finding that the CFPB had “made the rational connection between the facts found and the choice made when it chose to include” debit card payments in the rule. .