A district court has dismiss a challenge by the Consumer Financial Protection Bureau (“CFPB”) to the repeal of the underwriting provisions of its 2017 Payday Rules. The CFPB payday loan rule has a long and troubled history. The rule, first promulgated in 2017, had two main prohibitions – a prohibition on making payday loans without assessing a borrower’s ability to repay (the “underwriting provisions”), and a prohibition on withdrawing funds from a payday customer’s account without the customer’s consent after two years of consecutive failed loans Attempted Withdrawals (the “Payment Terms”). Shortly after the rule was promulgated, two industry bodies sued to challenge both aspects of the rule. Then CFPB leadership changed and the parties agreed to keep the rule’s fulfillment date while the CFPB considered what changes, if any, to make to the rule. In 2020, the then-new leadership repealed the rule’s actuarial provisions, but left the payment provisions untouched. The lawsuit by the industry was thus limited to the payment provisions that still exist; A district court upheld these provisions against the trade associations’ challenge, but the compliance date has been pushed back pending a decision on the trade associations’ appeal.
Meanwhile, an association of community and economic development organizations sued to contest the repeal of the original rule’s underwriting requirements in 2020. This lawsuit has now been dismissed for lack of legal standing, with the district court finding that the plaintiff association did not suffer any recognizable damage as a result of the abolition of the insurance provisions. Of course, the CFPB leadership has changed again in the meantime; it may be that the CFPB will try again to announce some form of subscription restrictions. Even without the payday rule, the CFPB did clear that credit products that are “not underwritten on the basis of the consumer’s likely ability to make the required (or, in the case of variable rate products, potentially required) payments over the life of the loan” reflect an increased risk of unfair, deceptive intent may or abusive acts or practices.
So where are things?
- The actuarial provisions of the original payday rule were repealed and the challenge to that reversal was dismissed. The actuarial provisions are therefore no longer in place. But, of course, this dismissal is subject to appeal, and the new CFPB leadership could try again to enforce actuarial provisions through new rulemaking. And the CFPB could continue to pursue certain behaviors through its general UDAAP agency.
- The terms of payment have been complied with. However, the compliance date for these provisions has been suspended pending a decision on the industry bodies’ appeal against that decision.
- Bottom Line: More than four years after the Rule was promulgated, none of its provisions are currently in effect.