Another Shot at the Target: CFPB Payday Loan Rule Faces New Challenge from Trade Groups

By Jennifer Janeira Nagle, Robert W. Sparkes, III, Hayley Trahan-Liptak

The Consumer Financial Protection Bureau’s Payday Loan Rule (the “Rule”), with a looming compliance deadline in August 2019, is facing yet another attack—this time from trade groups seeking relief directly from the courts. On April 9, 2018, two payday lending industry trade associations — the Community Financial Services Association of America, Ltd. and the Consumer Services Alliance of Texas — filed suit in the U.S. District Court for the Western District of Texas against the Consumer Financial Protection Bureau (“CFPB”) and its Acting Director, Mick Mulvaney, seeking an order enjoining and setting aside the Rule.

This most recent judicial challenge is another in a series of threats to the Rule. On December 1, 2017, a bi-partisan joint resolution was introduced in the House of Representatives under the Congressional Review Act (“CRA”) seeking to render the Rule null and void. See https://www.consumerfinancialserviceswatch.com/2018/01/payday-loan-rule-is-officially-a-go-or-is-it/.  Then, on the Rule’s January 16, 2018 effective date, the CFPB issued a press release stating that the “Bureau may reconsider the Payday Rule” and that it intended to engage in additional rulemaking on that front. See https://www.consumerfinancialserviceswatch.com/2018/01/payday-loan-rule-to-be-officially-reconsidered/.  Since that time, neither the House of Representatives nor the CFPB has taken any further action on the Rule, despite its regular appearance in the press.

Meanwhile, on March 23, 2018, Senator Lindsey Graham introduced yet another congressional resolution—this time in the Senate—to repeal the Rule, making good on his prior statements that legislative action pursuant to the CRA was more appropriate than further rulemaking by the CFPB. Democratic senators responded to the proposed legislation on March 27, 2018, with a letter to Acting Director Mulvaney as well as to Leandra English (who some continue to recognize as the proper acting director of the CFPB), encouraging the Bureau not to proceed with additional rulemaking  to “reconsider” the Rule but rather to enforce the Rule as promulgated. See https://www.durbin.senate.gov/imo/media/doc/Senator%20Durbin%20letter%20to%20CFPB.pdf.

The trade groups’ lawsuit takes the war on the Rule to a different battleground. The complaint, styled Community Financial Services Association of America, Ltd., v. Consumer Financial Protection Bureau, No. 1:18-cv-295-LY, alleges six counts, including that: (1) the CFPB, as constituted, is unconstitutional and the Rule is therefore void; (2) the Rule is an unconstitutional violation of the non-delegation doctrine; (3) the Rule falls outside the CFPB’s statutory authority; (4) the rulemaking procedure was arbitrary and capricious in violation of the Administrative Procedures Act (“APA”); (5) the rulemaking was premised on a defective cost-benefit analysis; and (6) the CFPB did not properly follow the rulemaking process required by the APA and other applicable law.

In support of their claims, the trade-group plaintiffs contend that the “draconian” Rule as finalized would “virtually eliminate the entire payday-loan industry” and “deny[] access to this form of credit for millions of consumers who rely on it.”

As challenges to the Rule multiply, and with the August 2019 deadline still in play, something must give but when and how remains to be seen. We will continue to monitor the litigation and the Rule for further developments.