CFPB payday lending rule litigation
Overview: CFPB Payday Lending Rule
The Consumer Financial Protection Bureau (CFPB), created after the 2008 financial crisis under the Dodd-Frank Act (2010), has the authority to regulate consumer financial products, including payday loans—small, short-term, high-interest loans often criticized for trapping borrowers in cycles of debt.
The CFPB issued the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (often called the "Payday Lending Rule") in 2017 to protect consumers by:
Requiring lenders to determine if borrowers can repay loans without re-borrowing or defaulting.
Placing limits on repeated refinancing.
Mandating disclosures for consumers.
This rule faced significant legal challenges, primarily from industry groups arguing the CFPB exceeded its authority or that the rule was too burdensome.
Key Litigation and Case Law
1. CFPB v. Community Financial Services Association of America, Ltd. (N.D. Tex., 2019)
Facts:
The payday lending industry, led by the Community Financial Services Association (CFSA), challenged the CFPB’s Payday Lending Rule, arguing that the CFPB had overstepped its statutory authority and that the rule was arbitrary and capricious.
Issue:
Whether the CFPB had statutory authority to impose the underwriting requirements.
Whether the rule was arbitrary and capricious under the Administrative Procedure Act (APA).
Court's Ruling:
The District Court in Texas issued a preliminary injunction blocking enforcement of the repayment ability requirements.
The court found that the CFPB’s justification for the rule was insufficient and that the rule imposed significant burdens on lenders and consumers.
The court expressed concern about the CFPB’s interpretation of the Dodd-Frank Act regarding ability-to-repay requirements for payday loans.
Significance:
This case demonstrated strong judicial skepticism of the CFPB’s approach to regulating payday lending. The preliminary injunction slowed the implementation of the rule.
2. PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018)
While this case primarily concerned the CFPB’s structure and leadership, it is pivotal for understanding challenges to the agency's rulemaking authority, including payday lending rules.
Facts:
PHH challenged the constitutionality of the CFPB’s structure, which has a single director removable only for cause.
Issue:
Is the CFPB’s structure constitutional under the separation of powers?
Does this affect the CFPB’s authority to issue rules like the payday lending rule?
Holding:
The D.C. Circuit found the CFPB’s structure unconstitutional but severed the problematic provision, allowing the CFPB to continue operating.
This ruling affirmed the CFPB’s general authority to issue rules but signaled limits on agency independence.
Significance:
Though indirect, this case shaped the legal environment within which payday lending regulations were challenged, questioning the agency’s power and leadership accountability.
3. True Cause v. CFPB, No. 1:18-cv-01076 (D.D.C. 2018)
Facts:
True Cause, a coalition of lenders and trade groups, filed suit challenging the CFPB’s payday lending rule on several grounds.
Issues:
Whether the CFPB exceeded its statutory authority.
Whether the rule was arbitrary and capricious.
Whether the CFPB failed to consider economic impacts properly.
Outcome:
The court held oral arguments but did not issue a final ruling before the CFPB delayed the rule's effective date. The case remains significant for the legal issues raised.
4. National Payday Lenders Association v. CFPB, No. 1:17-cv-02532 (D.D.C. 2017)
Facts:
The National Payday Lenders Association (NPLA) challenged the CFPB’s payday lending rule immediately after its release.
Issues:
CFPB's authority to impose ability-to-repay requirements.
Whether the rule infringed on states' rights.
Whether the rule violated the Administrative Procedure Act.
Outcome:
The court declined to grant a preliminary injunction, allowing the rule to proceed while litigation continued. This case represents the industry's broad opposition to the rule.
5. In Re CFPB Payday Rule Litigation (D.D.C. 2019)
Facts:
Following multiple challenges, the CFPB under a new director delayed implementation of the payday lending rule and later sought to rescind it.
Issues:
Can the CFPB rescind or revise a previously finalized rule?
Whether the rescission or delay complies with the APA.
Outcome:
Several lawsuits ensued regarding the CFPB’s attempt to delay and rescind the rule. Courts analyzed whether such actions required full notice-and-comment rulemaking.
Summary of Legal Themes in CFPB Payday Lending Litigation
| Issue | Description |
|---|---|
| Agency Authority | Whether CFPB has statutory power to regulate payday lending |
| Ability-to-Repay Rule | Core CFPB requirement challenged as overly burdensome |
| APA Compliance | Whether CFPB followed proper procedures in rulemaking and rescission |
| State Preemption | Debate over whether CFPB rule overrides state payday lending laws |
| Standing & Injury | Industry groups challenge based on economic and regulatory harm |
Conclusion
The CFPB payday lending rule litigation centers on the balance between consumer protection and regulatory overreach. The key cases demonstrate judicial scrutiny of the CFPB’s authority, economic impact analysis, and procedural compliance. The ongoing litigation has shaped and sometimes stalled CFPB’s efforts to regulate the payday loan industry.
RELATED Blog
0 comments