PayDay Lenders Flex Their Lobbyist and Legal Moxie at the Bureau in Texas LawSlinger.

The industry trade groups challenging the CFPB’s final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule) have filed a motion for summary judgment.

The motion follows the filing of an Amended Complaint by the trade groups focused on the Rule’s payments provisions and the filing of an Answer to the Amended Complaint by the CFPB.

In the Amended Complaint, the plaintiffs alleged that the Rule violates both the Constitution and the Administrative Procedures Act (APA) and that the payments provisions have additional infirmities that render them invalid. In their summary judgment motion, the plaintiffs argue that the payments provisions should be held unlawful and set aside for the following reasons:

Because the U.S. Supreme Court decided in Seila Law that the CFPB’s Director who adopted the Rule was unconstitutionally insulated from discharge by the President, the Rule was invalid from the outset and Director Kraninger’s ratification of the payments provisions is ineffective. In support, the plaintiffs assert:

The remedy for a notice-and-comment process undertaken by a Bureau that lacked the power to act is a new notice-and-comment process initiated by a properly serving Director and not ratification.
Even if ratification can cure constitutional violations, it cannot do so where the violation limited the agency’s power to act.

As a matter of agency law, ratification requires a principal that had authority to act at the relevant time and an agent who lacked that authority, whose actions the principal must subsequently approve.

Because the constitutional violation resulting from the Bureau’s structure means the Bureau did not have the authority to adopt the Rule, Director Kraninger does not have authority to ratify the payments provisions.

The ratification of the payments provisions is arbitrary and capricious within the meaning of the APA because:

The payments provisions were based on a UDAAP theory expressly rejected by the CFPB in its revocation of the Rule’s underwriting provisions.

The ratification embodies an unexplained about-face by the Bureau regarding the time needed to implement the payments provisions.

After concluding that 21 months were needed for companies to comply, the Bureau has effectively proposed to replace that period with a 60-day deadline.

The payments provisions cannot be ratified in part, without ratification of the 21-month implementation period.

The Bureau’s declaration that it is an unfair and abusive practice for payday lenders to attempt an authorized withdrawal from a borrower’s bank account is based on a mode of analysis the Bureau expressly rejected in its revocation of the Rule’s underwriting provisions.

The Bureau’s cost-benefit analysis is fatally flawed because it is premised on the basis that the Rule’s underwriting provisions would reduce the costs to lenders of complying with the payments provisions, and that premise no longer stands because the underwriting provisions have been revoked.

Additionally, the Bureau’s cost-benefit analysis is defective because the Bureau failed to weigh important effects of the payments provisions such as the increased likelihood that a loan would enter into collections sooner than it otherwise would have (if it would have at all) and failed to account for additional accrued interest that consumers would incur as a result of the timing requirements of the notices that must be sent before payments can be processed.

The payments provisions contravene the Dodd-Frank Act provisions that prohibit the Bureau from (1) establishing a usury limit because the Rule targets a category of loans based on their interest rate and (2) making public policy considerations the primary basis for an unfairness determination and from considering public policy at all in determining whether an act or practice is abusive.

The Bureau’s denial of a petition for a rulemaking to amend the payments provisions to exclude debit-card transactions was arbitrary and capricious because such transactions typically do not, if ever, result in fees.

The Bureau continues to be unconstitutional because its funding mechanism usurps Congress’s role in the allocation of federal funds and the Bureau’s UDAAP authority is an unconstitutional delegation of authority of Congress due to the lack of any “intelligible principle” guiding the Bureau’s use of that authority.

Under the scheduling order entered by the court, the Bureau must file by October 23 its combined cross-motion for summary judgment and opposition to the plaintiffs’ summary judgment motion.

Trade groups file amended complaint in Texas lawsuit challenging CFPB payday loan rule

Originally Posted: August 31, 2020 | Reposted by LIT: Oct. 6, 2020

On August 28, 2020, the industry trade groups challenging the CFPB’s final Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule) filed their Amended Complaint in accordance with the briefing schedule recently entered by the court.

The Amended Complaint focuses on the payment provisions of the Rule but the trade groups have expressly reserved the right to renew their challenges to the underwriting provisions of the Rule in the event the Bureau’s revocation of those provisions is set aside for any reason, including legislative, executive, administrative or judicial action.

In the Amended Complaint, the plaintiffs allege that the Rule violates both the Constitution and the Administrative Procedures Act (the APA).

Starting with the Supreme Court’s decision in Seila Law that the Director of the CFPB who adopted the Rule was unconstitutionally insulated from discharge without cause by the President, the Amended Complaint argues that a valid Rule requires a valid notice and comment process from inception and not mere ratification of the final result by a properly serving Director.

It further asserts that ratification of the payment provisions is arbitrary and capricious within the meaning of the APA because the payment provisions were based on a UDAAP theory expressly rejected by the CFPB in its revocation of the underwriting provisions of the Rule and the CFPB has failed to explain how a lender can commit a UDAAP violation, consistent with the theory of the revocation of the underwriting provisions, when the consumer is free to eschew a covered loan based on a generalized understanding of the risk of multiple NSF fees.

The Amended Complaint takes issue with the payment provisions based on a number of additional alleged infirmities, including the following:

The CFPB provided a lengthy period for the industry to comply with the original Rule but failed to provide any compliance period for the ratified Rule.  Thus, the current Rule differs from the original Rule it purports to ratify in a key respect.

The 36% APR trigger for covered installment loans is fundamentally at odds with the provision of the Dodd-Frank Act explicitly prohibiting the CFPB from establishing usury limits.

The alleged harms the payment provisions are designed to forestall are caused by the banks holding the consumers’ deposit accounts and not by the lenders who initiate payments declined due to insufficient funds.

The Bureau acted arbitrarily and capriciously in extending the payments provisions to multi-payment installment loans, where consumers have lengthy periods of time between installments to respond to failed payment-transfer attempts (and where, we would note, consumers are already free under the Electronic Funds Transfer Act to decline to authorize loan payments through recurring electronic fund transfers).

The Bureau also acted arbitrarily and capriciously in extending the payments provisions to debit and prepaid card transactions, where failed payment-transfer attempts typically do not, if ever, result in fees.  (We have repeatedly expressed the view that this key aspect of the Rule is indefensible.)

The CFPB evidence supporting the payment provisions was insufficiently robust and reliable, especially with respect to storefront and installment loans since the CFPB relied upon evidence about online single-payment loans.

The timing requirements for notices under the Rule arbitrarily prevent consumers from scheduling earlier payments.

The CFPB did not consider whether enhanced disclosures could have adequately prevented the perceived consumer injuries.

We believe that the Amended Complaint represents a powerful attack on the payment provisions of the Rule.  We have only one point we would emphasize to a greater extent:

There is no apparent link between the UDAAP problem identified in Section 1041.7 of the Rule—consumers incurring bank NSF fees for dishonored checks and ACH transactions after two consecutive failed payment transfers—and the burdensome notice requirements in Section 1041.9 of the Rule.

To our mind, these elaborate notice requirements are arbitrary and capricious for this further reason.

We will continue to follow this case closely and report on further developments.

Texas federal court lifts stay of lawsuit challenging CFPB payday loan rule and sets briefing schedule

Originally Published: August 21, 2020; Republished by LIT: October 6, 2020

POSTED IN CFPB, REGULATORY AND ENFORCEMENT

The Texas federal district court hearing the lawsuit filed by two trade groups challenging the CFPB’s 2017 final payday/auto title/high-rate installment loan rule (2017 Rule) has entered an order lifting the stay of the lawsuit, originally entered in June 2018 on the heels of the trade groups’ motion for a preliminary injunction and before the CFPB’s response to the motion or answer to the complaint in the case.

In addition to lifting the court’s stay of the lawsuit (but not the separate stay of implementation of the 2017 Rule), the order also set a schedule for the trade groups to file, and the CFPB to answer, an amended complaint, and for the parties to file and brief cross-motions for summary judgment.

Because the CFPB has rescinded the mandatory underwriting provisions of the 2017 Rule, the continuing litigation will focus on the 2017 Rule’s payment provisions, which were left untouched by the CFPB in its recent rulemaking.

Under the order, the deadline for the final summary judgment brief to be filed is December 18, 2020. Until then—and unless and until the court decides the summary judgment motions in favor of the CFPB—we deem it highly unlikely that the court will take any action to lift its stay of implementation of the 2017 Rule.

D. Lynn DeVault
Chairman of the Board (2019-2021)
Check Into Cash, Inc.
Jones Management Company
Cleveland, TN

Darrin Andersen
Treasurer/Secretary (2020-2021)
QC Holdings, Inc.
Overland Park, KS

Jamie Fulmer 
Chair-Elect (2020-2021)
Purpose Financial
Spartanburg, SC

C. Dan Adams
The Capital Corporation
Greenville, SC

Kip Cashmore
USA Cash Services
Ogden, UT

Mike Hodges
Advance Financial
Nashville, TN

Brian K. Lynn
LendingBear
Jacksonville, FL

Ian MacKechnie
Amscot Financial, Inc.
Tampa, FL