CFPB Payday Rule lawsuit regarding the payments provision takes another turn

CFPB Payday Rule lawsuit regarding the payments provision takes another turn

by The CAB Man Texas on September 2, 2020

On August 28th, CFSA and CSAT filed “Amended Complaints” that were focused on the payment provisions of the CFPB rule.  I read a thorough summary from Jeremy Rosenblum at Ballard Spahr.  This is some good stuff! I mean, who doesn’t love when someone uses the terms “arbitrary and capricious?  That’s when us laypersons really know there is some serious lawyer-ing going on!   

The amended complaints have some teeth which were good to see strike home and sink deep.  And, the inclusion of debit card debiting in the payments provision got its fair share of attention.  I for one hope that continues, maybe even gets put at the top of the list.  Without thinking deeply, I can say that if that facet were removed from the rule I would be breathing easily on the entire topic.  I know that others with a different business model may differ, but it is by far ours and our customer’s favorite payment method for convenience reasons, and also because it does not cause NSF charges if the payment returns.  It does not seem likely that the industry will have to “go live” with these provisions as they are now, by November.  There is still much to be worked though in this legal process which has been long and winding. With all of the questions at this point how can it be known what the rule will look like anytime soon?  Operators still need fair time to install the proper procedures and notifications and that window is now far too tight for a November go live date. 

See below for some takeaways from Jeremy’s blog post:

“Trade Groups File Amended Complaint In Texas Lawsuit Challenging CFPB Payday Loan Rule.

In the Amended Complaint, the plaintiffs (our industry) 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 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.”

Here is a link to the article – thank you Ballard Spahr!

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