Consumer Finance Insights
October 7, 2021

CFPB Overcomes Challenge to PayDay Lending Rule

On August 31, 2021, the United States District Court for the Western District of Texas issued an opinion upholding the Consumer Financial Protection Bureau’s (CFPB) Rule regulating payday lending.  Community Financial Services Association of America, LTD., et al. v. CFPB, Case No. 1:18-CV-00295 (W.D. TX.) (Community v. CFPB).

For background, on November 17, 2017, the CFPB had issued the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” Rule (Rule).  The Rule included an Underwriting Provision, which restricts lenders from making covered loans “without reasonably determining that the consumers will have the ability to repay the loans” and a Payment Provision, which restricts certain lenders from attempting to withdraw from a consumer’s account after two failed withdrawal attempts, without a new consumer authorization.  In 2020, the Supreme Court held that the leadership structure of the CFPB was unconstitutional.  Seila Law LLC v. CFPB, 140 S .Ct. 2183, 2192 (2020) (Seila Law).  A few weeks after the Seila Law decision, the CFPB ratified the Payments Provision of the Rule. 85 Fed. Reg. 4 1,905-02 (July 13, 2020).

Community v. CFPB was brought on behalf lenders and business affected by the Rule and the Rule’s ratification.  Community v. CFPB relied on Seila Law to present a direct challenge to the Rule’s the Payment Provision.  Ultimately, the district court rejected all of the Plaintiffs’ arguments as to why the Payment Provisions should be set aside.  The district court noted that the Supreme Court had held that the “[Seila Law] holding on standing does not mean that actions taken by such an officer are void ab initio and must be undone.”  Further, the district court held that the ratification of the Rule was “valid and cured the constitutional injury.”  The Plaintiffs also argued that one of its members had submitted a rulemaking petition to amend the Rule to exclude debit card payments from the Payments Provision, and the CFPB’s denial of this petition was arbitrary and capricious.  The district court disagreed, finding that the CFPB had “established the rational connection between the facts found and the choice made when it chose to include” debit card payments in the Rule.

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