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Another Shot at the Target: CFPB Payday Loan Rule Faces New Challenges from Trade Groups

The Consumer Financial Protection Bureau’s Payday Loan Rule (the “Rule”), with a looming compliance deadline in August 2019, is facing yet another attack—this time from trade groups seeking relief directly from the courts. On April 9, 2018, two payday lending industry trade associations — the Community Financial Services Association of America, Ltd. and the Consumer Services Alliance of Texas — filed suit in the U.S. District Court for the Western District of Texas against the Consumer Financial Protection Bureau (“CFPB”) and its Acting Director, Mick Mulvaney, seeking an order enjoining and setting aside the Rule.

This most recent judicial challenge is another in a series of threats to the Rule. On December 1, 2017, a bi-partisan joint resolution was introduced in the House of Representatives under the Congressional Review Act (“CRA”) seeking to render the Rule null and void. See here.  Then, on the Rule’s January 16, 2018 effective date, the CFPB issued a press release stating that the “Bureau may reconsider the Payday Rule” and that it intended to engage in additional rulemaking on that front. See here.  Since that time, neither the House of Representatives nor the CFPB has taken any further action on the Rule, despite its regular appearance in the press.

Meanwhile, on March 23, 2018, Senator Lindsey Graham introduced yet another congressional resolution—this time in the Senate—to repeal the Rule, making good on his prior statements that legislative action pursuant to the CRA was more appropriate than further rulemaking by the CFPB. Democratic senators responded to the proposed legislation on March 27, 2018, with a letter to Acting Director Mulvaney as well as to Leandra English (who some continue to recognize as the proper acting director of the CFPB), encouraging the Bureau not to proceed with additional rulemaking  to “reconsider” the Rule but rather to enforce the Rule as promulgated. See

The trade groups’ lawsuit takes the war on the Rule to a different battleground. The complaint, styled Community Financial Services Association of America, Ltd., v. Consumer Financial Protection Bureau, No. 1:18-cv-295-LY, alleges six counts, including that: (1) the CFPB, as constituted, is unconstitutional and the Rule is therefore void; (2) the Rule is an unconstitutional violation of the non-delegation doctrine; (3) the Rule falls outside the CFPB’s statutory authority; (4) the rulemaking procedure was arbitrary and capricious in violation of the Administrative Procedures Act (“APA”); (5) the rulemaking was premised on a defective cost-benefit analysis; and (6) the CFPB did not properly follow the rulemaking process required by the APA and other applicable law.

In support of their claims, the trade-group plaintiffs contend that the “draconian” Rule as finalized would “virtually eliminate the entire payday-loan industry” and “deny[] access to this form of credit for millions of consumers who rely on it.”

As challenges to the Rule multiply, and with the August 2019 deadline still in play, something must give but when and how remains to be seen. We will continue to monitor the litigation and the Rule for further developments.

Hayley Trahan-Liptak contributed to this post.

Copyright 2019 K & L Gates


About this Author

Jennifer Nagle, KL Gates Law Firm, Financial Services Litigation Attorney

Ms. Nagle is a partner in the litigation department of the firm's Boston office. She concentrates her practice in complex commercial litigation, with emphases in financial institutions and services litigation and class action litigation defense. Ms. Nagle has also counseled clients on compliance with various consumer financial services laws, and in connection with government inquiries into various servicing practices.

Robert W. Sparkes III, Complex Civil and commercial Litigation, KL Gates, Law Firm

Mr. Sparkes is a partner in the Boston office of K&L Gates with extensive experience in complex civil and commercial litigation, including federal and state class action litigation. Mr. Sparkes is a member of the firm’s Financial Institution and Services Litigation group and the Class Action Litigation Defense group. He regularly represents banking, mortgage lending, mortgage servicing, consumer financial services institutions, and other business entities in consumer class actions and individual litigation matters in federal and state courts throughout the United States, including in Massachusetts, California, Missouri, Michigan, Connecticut, Ohio, Delaware, Maryland, Arizona, West Virginia, New Jersey, Vermont, Washington, Illinois, Pennsylvania, and New York. These actions often concern challenges under federal statutes, including the federal Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Racketeer Influenced and Corrupt Organizations Act, as well as state unfair and deceptive acts and practices statutes, and common law claims. Mr. Sparkes also has experience representing a variety of corporate and individual clients in contract, tort, class action, consumer protection, and other general business litigation and arbitration matters.