CFPB, Payday Lenders Seek Pause in Rule Battle

By Evan Weinberger

The Consumer Financial Protection Bureau and payday lending industry groups on May 31 asked for a pause in litigation aiming to overturn the bureau’s rules for the industry, as the CFPB confirmed that a new proposal is coming soon.

The Community Financial Services Association of America and the Community Service Alliance of Texas signed a joint motion to stay their lawsuit over the CFPB’s payday lending rule filed in the U.S. District Court for the Western District of Texas.

The parties agreed that the litigation should be put on hold until after the CFPB completes a new proposal for regulating short-term, high-interest loans. Such a proposal could be released as early as February, according to the motion.

“The rulemaking process may result in repeal or revision of the payday rule and thereby moot or otherwise resolve this litigation or require amendments to plaintiffs’ complaint,” the joint motion said.

Along with the stay on litigation, the CFPB and payday lending industry groups asked that any new rule not take effect until 445 days after a new final payday lending rule is released. That would give the industry time to determine whether further litigation was necessary, or to get their systems up to speed if the industry decides that a new rule, should it come, is acceptable.

The CFPB also asked the court to approve its request to not take the time to answer the payday lenders’ complaint.

Lenders Challenge CFPB

The CFSA and its Texas-based counterpart filed their lawsuit April 10 seeking to get the CFPB’s payday lending rule killed.

The rule, which was completed on Oct. 5 under former Director Richard Cordray, put new requirements on payday, auto title and other lenders to determine whether the borrowers could afford the loans they take out.

Payday loans typically carry two week repayment periods and can carry annual interest rates north of 300 percent. Consumer advocates charge that those loans can trap borrowers in a cycle of debt that is difficult to escape.

The industry lawsuit charges that the CFPB did not follow requirements of the Administrative Procedure Act, including conducting a complete cost-benefit analysis, when it completed the rule.

Payday Rule Endangered

Even before the industry lawsuit was filed, the CFPB’s payday lending rule was at risk.

Acting CFPB Director Mick Mulvaney, who also serves as the director of the Office of Management and Budget, has long been an opponent of the rule. He also took campaign contributions from payday lenders during his tenure as a member of Congress representing South Carolina.

Mulvaney took over leadership of the CFPB in late November and soon asked Congress to overturn the rule using the Congressional Review Act. The deadline for such a move passed in mid-May.

But the CFPB in January announced plans to revisit the payday lending rule, potentially repealing it or revising.

“I wouldn’t be the least bit shocked if the CFPB comes up with a new payday rule. That rule could be radically different than what’s in place right now,” Jeremy Rosenblum, a Ballard Spahr LLP partner who represents payday lenders, told Bloomberg Law in a June 1 phone interview.

Rather than mandating that lenders determine whether borrowers have the ability to repay their loans or putting restrictions on repeat borrowing, the CFPB could opt for a disclosure-based regimen, Rosenblum said.

Consumer advocates are concerned that even if the CFPB under Mulvaney comes out with a new version of the payday lending rule rather than disposing of it altogether, any new regulation is going to be significantly weaker than what Cordray’s CFPB developed.

“My guess is they will propose to amend the rule in technical ways that completely gut it,” Lauren Saunders, the associate director of the National Consumer Law Center, told Bloomberg Law in a June 1 phone interview.

Stay Makes Sense

With those potential changes coming, Rosenblum said a stay made abundant sense for both the CFPB and the payday lenders seeking to kill the rule.

The CFPB needs time to change the rule while avoiding the litigation distraction, while lenders will want to see what Mulvaney, or his successor, comes up with, he said.

“There’s no point for this litigation to proceed at this point,” Rosenblum said.

For consumer advocates, the delay represents the Trump administration and its representatives at the CFPB “colluding” with payday lenders rather than defending the rule.

“This is a profound disappointment for anyone who cares about the welfare of struggling consumers,” Christopher Peterson, the director of financial services at the Consumer Federation of America and a former top CFPB official, said in a statement.

The CFSA and the Community Service Alliance of Texas are represented by Jones Day LLP

The case is : Community Financial Services Association of America v. CFPB, W.D. Tex., No. 18-cv-295, motion filed 5/31/18

To contact the reporter on this story: Evan Weinberger at eweinberger@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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