A district court has fired a challenge to the Consumer Financial Protection Bureau’s (“CFPB”) repeal of the underwriting provisions of its 2017 payday regulations. The CFPB payday loan rule has a long and tortured history. First enacted in 2017, the rule had two main prohibitions: a ban on making payday loans without assessing a borrower’s ability to repay (the “underwriting provisions”) and a ban on attempting to withdraw funds from a Client’s Payday Account without the Client’s consent after two consecutive unsuccessful withdrawal attempts (the “Payment Arrangements”). Shortly after the rule was enacted, two industry trade groups filed a lawsuit challenging both aspects of the rule. Then the leadership of the CFPB changed and the parties agreed to suspend the rule’s compliance date while the CFPB considered what changes, if any, should be made to the rule. In 2020, the then new management repealed the underwriting provisions of the rule, but left the payment provisions intact. The action brought by the industry was therefore limited to the payment provisions still in force; a district court upheld those provisions against challenge from the industry groups, but the compliance date was suspended pending resolution of the trade groups’ appeal.
In the meantime, an association of community and economic development organizations has filed a lawsuit challenging the 2020 repeal of the original rule’s underwriting provisions. That lawsuit has now been dismissed for lack of standing, with the district court finding that the plaintiffs’ association suffered no recognizable harm as a result of the repeal of the underwriting provisions. Of course, in the meantime, the leadership of the CFPB has changed again; the CFPB may again seek to enact some type of underwriting restrictions. Even without the payday rule, the CFPB made disengage that credit products that “are not underwritten based on the consumer’s likely ability to make required (or, in the case of adjustable rate products, potentially required) payments during the term of the loan” may reflect increased risk of abusive acts or practices.
So where are things?
- The underwriting provisions of the original payday rule were repealed and the legal challenge to that repeal was dismissed. Thus, the subscription provisions are no more. But of course that dismissal may be appealed and the new CFPB leadership may again seek to impose underwriting provisions through new regulations. And the CFPB could still prosecute certain conduct through its general authority UDAAP.
- The payment arrangements have been maintained. But the date for bringing those provisions into compliance has been put on hold pending the resolution of an appeal by industry trade groups of that decision.
- In summary, more than four years after the rule was enacted, none of its provisions are currently in effect.