On March 22, the Consumer Financial Protection Bureau (Bureau) moved to reject a challenge to a final rule he promulgated last summer. But this routine classification was followed by a Blog which expressed the Bureau’s intention to deal with the contested rule outside the court and stated that its “brief speech[es] only the jurisdiction of the court to hear the case ”and“ does not address the merits of the underlying rule ”.
the contested rule revoked a Rule 2017 which imposed mandatory underwriting provisions on payday lenders. Specifically, the 2017 rule required lenders to reasonably assess a borrower’s ability to repay the loan on their terms and prohibited lenders from attempting to withdraw from a borrower’s account after two failed attempts. these attempts due to a lack of sufficient funds. The 2020 revocation took effect on October 20, 2020, before the 2017 rule went into effect. Nine days later, the National Association for Latino Community Asset Builders (NALCAB) disputed the revocation, alleging that it was arbitrary and capricious and did not meet regulatory requirements.
The Bureau’s motion argued that NALCAB lacks standing to prosecute – either alone or on behalf of its members – because its allegations are speculative and abstract. The next day, however, Acting Director Dave Uejio wrote a blog insisting that the Bureau’s motion simply fulfilled its “legal obligation” to respond to NALCAB’s complaint. In addition, “the filing of the Bureau should not be taken as an indication that the Bureau is satisfied with the status quo in [the payday lending] market ”and“ the Bureau believes that the harms identified by the 2017 rule still exist. “
Even if the Bureau’s public insistence on this duty alone motivated its rejection motion is doubtful (regardless of its composition and ideology, the Bureau clearly has an interest in avoiding deeming any of its rules to be arbitrary and capricious or that it was enacted illegally), Act Director Uejio’s statement sends a strong signal that the Bureau intends to reinstate the 2017 rule, but on its own terms rather than those of a court.
If and when this is the case, payday lenders will face a legal environment in which it is “unfair” and “abusive” to grant loans without reasonably determining the borrower’s repayment capacity. Assuming interim manager Uejio is correct that “the vast majority of [the] industry revenues [comes] of consumers who could not afford to repay their loans, “this could lead to a drastic change in the payday loan market and generate considerable litigation.
The district court case is National Association of Latin American Community Asset Builders vs. CFPB, No.1: 20-cv-03122-APM (DDC).