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CFPB files response supporting motion for reconsideration of plaintiffs in industry lawsuit challenging CFPB payday loan rule

The CFPB has filed a response in support of the motion for reconsideration filed by the trade groups challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The motion for reconsideration asks the Texas federal court to reconsider its June 12 order granting the stay of the trade groups’ lawsuit challenging the Payday Rule that the trade groups and the CFPB had sought in a joint motion but denying the stay of the Payday Rule’s August 19, 2019 compliance date that was also requested in the joint motion.

Four consumer advocacy groups had filed an amicus memorandum opposing the joint motion.  The joint motion sought the stay of the compliance date pursuant to Section 10(d) of the Administrative Procedure Act (APA), 5 U.S.C. Section 705.  In their amicus brief, the advocacy groups argued that a stay of the compliance date while also staying the litigation was inconsistent with the purpose of Section 705 to stay agency action in order to maintain the status quo during judicial review.

In its response in support of the motion for reconsideration, the CFPB argues that the court can properly use its authority under Section 705 to stay the Payday Rule’s compliance date while also staying the litigation because Section 705 contains no “‘active litigation’ requirement.”  According to the CFPB, the court’s authority to grant a Section 705 stay of the Payday Rule “is analogous to courts’ practice of preliminary enjoining an agency action and then staying further litigation while the agency reconsiders the challenged action.”

The amici had also argued that the stay of the compliance date requested in the joint motion was an attempt “to effect an end-run around” the Administrative Procedure Act’s notice-and-comment rulemaking procedures.  The CFPB argues in its response in support of the reconsideration motion that the court’s grant of the stay would not violate such APA procedures “because those requirements apply only to agencies and not to reviewing courts such as this Court.”

The CFPB explains in its response that while its reconsideration of the Payday Rule is the basis for the joint request to stay the litigation, it is not the basis for the joint request to stay the compliance date.  According to the CFPB, the basis for the joint request to stay the compliance date is the “serious legal question” presented by the trade groups’ lawsuit.

Although the joint motion had argued that the four factors used to assess requests for Section 705 stays were satisfied, the CFPB’s response offers more detailed support for that argument.  The CFPB asserts:

  • The trade groups have presented a substantial case on the merits of their claims that the rulemaking record for the Payday Loan Rule “did not provide substantial evidence for several findings underpinning critical elements of the Rule and that, to that extent, the Rule is therefore arbitrary and capricious.”
  • The trade groups have made a substantial case on the merits “with respect to their attack on the evidentiary basis” for the Bureau’s determination that making certain short-term and balloon-payment consumer loans without reasonably determining the borrower’s ability to repay is an unfair and abusive practice.  With respect to the Bureau’s unfairness determination, the CFPB contends that the trade groups have met their burden of showing a substantial case on the merits that the evidence before the Bureau may not have supported a conclusion that consumers could not reasonably avoid the harms found by the CFPB to be caused by non-underwritten loans, one of the statutory elements of unfairness.
  • It is uncertain whether the CFPB could prevent irreparable harm to the trade groups’ members by staying the Payday Rule itself.  The CFPB states that “although the Bureau could undertake a notice-and-comment rulemaking to delay the current Rule’s compliance date, the outcome of such a rulemaking would be uncertain, as it would depend, for example, on the considerations raised by public commenters.”  In addition, because the trade groups’ members are already suffering irreparable injury by preparing to comply with the Payday Rule, the CFPB could not prevent that harm by issuing a rule to delay the compliance date.

While we are hopeful that the court will grant the motion to reconsider, we continue to believe that the CFPB should be ready to publish a notice of proposed rulemaking to postpone the compliance date if the court denies the motion.  Interim rulemaking limited to the compliance deadline could be initiated in short order since the basis for seeking the delay is already set forth in the CFPB’s response in support of the motion for reconsideration.  Such rulemaking would reduce regulatory uncertainties while preserving the schedule for substantive rulemaking, currently anticipated for February 2019.

Copyright © by Ballard Spahr LLP

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About this Author

Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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215-864-8544
Jeremy T Rosenblum, consumer financial services group, finance partner, Philadelphia, Pennsylvania, Ballard Spahr, UDAAP, TILA
Partner

Jeremy T. Rosenblum is Co-Practice Leader of the firm's Consumer Financial Services Group. He has devoted the past 30 years in private practice to representing the consumer financial services industry.

Mr. Rosenblum's practice focuses on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection and usury laws, including "UDAAP" statutes prohibiting unfair, deceptive, and abusive acts and practices; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Mr. Rosenblum's practice involves regular dealings with industry trade groups and regulators. In this regard, he has drafted a number of amicus curiae briefs, to the U.S. Supreme Court and other courts, on behalf of a number of industry and business trade groups, including the American Bankers Association, the Consumer Bankers Association, the U.S. Chamber of Commerce, the Mortgage Bankers Association, the Financial Services Roundtable, and the American Financial Services Association.

In addition to his consumer financial services regulatory and litigation practice, Mr. Rosenblum represents banks, thrifts, and other entities in charter transactions; mergers, acquisitions, and conversions; asset securitizations; purchases of loan servicing rights; and public offerings and private placements of equity and debt instruments.

215-864-8505