On March 22, the Consumer Financial Protection Bureau (Bureau) moved to dismiss a challenge to a final rule it promulgated last summer. But this routine filing was followed by a blog that expressed the Bureau’s intent to address the challenged rule outside of court and clarified that its “brief address[es] only the court’s jurisdiction to hear the case” and “does not address the merits of the underlying rule.”
The challenged rule revoked a 2017 rule that 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 its terms and barred lenders from attempting to withdraw from a borrower’s account after two such attempts had failed due to lack of sufficient funds. The 2020 revocation became effective on October 20, 2020, before the 2017 rule had gone into effect. Nine days later, the National Association for Latino Community Asset Builders (NALCAB) challenged the revocation, alleging it was arbitrary and capricious and did not observe rulemaking requirements.
The Bureau’s motion argued NALCAB lacks standing to sue — on its own or on behalf of its members — because its allegations are speculative and abstract. The next day, however, Acting Director Dave Uejio penned a blog insisting the Bureau’s motion merely fulfilled its “legal obligation” to respond to NALCAB’s complaint. Further, “the Bureau’s filing should not be regarded 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 that duty alone prompted its motion to dismiss is dubious (regardless of its composition and ideology, the Bureau clearly benefits from avoiding a judgment that one of its rules is arbitrary and capricious or that it was illegally promulgated), Acting Director Uejio’s statement sends a strong signal that the Bureau intends to reinstitute the 2017 rule, but on its own terms rather than a court’s.
If and when it does, payday lenders will face a legal environment in which it is “unfair” and “abusive” to make loans without reasonably determining the borrower’s ability to repay. Assuming Acting Director Uejio is correct that “the vast majority of [the] industry’s revenue [comes] from consumers who could not afford to repay their loans,” this could institute a sea change in the payday lending market and generate considerable litigation.
The district court case is National Association for Latino Community Asset Builders v. CFPB, No. 1:20-cv-03122-APM (D.D.C.).