CFPB’s Payday Lender Rule Rewrite Justifies Implementation Delay (2)

By Evan Weinberger

Payday lenders don’t have to start complying with the Consumer Financial Protection Bureau’s industry rules in August 2019, when they were originally set to take effect, a federal judge ruled.

Judge Lee Yeakel of the U.S. District Court for the Western District of Texas said Nov. 6 that payday lenders should not be forced to get ready for the new rules because the CFPB said on Oct. 26 that it plans to file in January a revised proposal to the first-of-their kind federal rules. The revision will also include a proposal to delay the implementation date for the new rules, the CFPB said.

Yeakel said these coming changes justify reversing his earlier opposition on delaying the rule’s effective date while litigation launched by the Community Financial Services Association of America and the Community Service Alliance of Texas was still alive. “Upon reconsideration, and given the information in the October 26 joint report, the court concludes that to prevent irreparable injury a stay of the Rule’s current compliance date of August 19, 2019, is appropriate,” Yeakel wrote in the order, referring to a joint status report filed by the parties to the litigation.

The litigation is stayed pending the outcome of the CFPB’s rule revision process.

Cordray Vestige

The CFPB’s payday lending rule, finalized in October 2017 in one of the last acts of former Director Richard Cordray, would have put in place new requirements that lenders determine whether borrowers can repay the short-term, high-interest loans.

The rule also would have limited the number of consecutive loans that borrowers could take out, among other ability-to-repay requirements.

In addition, the rule put in place requirements that lenders notify first-time borrowers about accessing their bank accounts as well as other payments-related restrictions.

Payday lenders said that the rule would lead to many businesses shuttering and would limit borrowers’ ability to get loans. But they held off on suing because they thought that a CFPB led by a Trump appointee would kill the regulation before it took effect.

That didn’t happen immediately, with acting Director Mick Mulvaney announcing in January plans to revisit the rule. The CFSA filed its lawsuit in April to kill it.

In late May, the industry groups and the CFPB asked Yeakel to stay the litigation and the regulation’s effective date. Specifically, the two sides asked for the rule to be put on hold until 445 days after a final decision in the case.

Yeakel agreed to stay the litigation in June, but left the effective date intact.

Change in Plans

The judge’s mind was changed late last month when the CFPB announced plans to revise the payday lending rule through a series of proposals set to be released in January.

One proposal would eliminate the ability-to-repay provisions while keeping in place the rule’s payments provisions. A second would address the effective date.

Those coming changes made requiring lenders to prepare for the existing rule inappropriate, Yeakel ruled.

“We are pleased with the court’s decision to hit the pause button on the bureau’s misguided small-dollar rule, as staying the compliance date is the logical and reasonable approach to avoid forcing companies to endure the cost of complying with a rule that may never take effect,” Dennis Shaul, the CFSA’s chief executive, said in a Nov. 7 statement.

However, Yeakel did not agree to the effective date stay proposed by the CFPB and the industry groups, instead saying that the stay’s length would be addressed later.

The CFPB declined to comment on pending litigation.

But consumer advocates who back the rule said that Yeakel should have kept the rule on track to take effect in August.

“A delay is unjustified, and every additional day without the rule will permit lenders to trap more borrowers in the high-cost debt traps the rule is designed to prevent,” Will Corbett, an attorney with the Center for Responsible Lending, said in a Nov. 7 email to Bloomberg Law.

‘Hopelessly Muddled’

Despite the delay in the implementation date, Yeakel’s ruling and the coming re-proposal from the CFPB leaves the rule’s status “hopelessly muddled,” according to Jeremy T. Rosenblum, a partner at Ballard Spahr LLP in Philadelphia who represents payday lenders.

The CFPB could theoretically issue a proposed implementation delay for only the ability-to-repay portions of the rule while allowing the payments portion of the rule to move forward as scheduled, he said.

“In other words, does the industry still need to worry about a potential August 19, 2019 compliance date for the payment provisions? For now, I think the answer is yes,” Rosenblum said in an email to Bloomberg Law.

In order to avoid confusion, Rosenblum said the two sides should either ask for more clarity from Yeakel on whether all of the rule’s provisions will be stayed pending the bureau’s rewrite.

Alternatively, the CFPB should make such a stay clear in its own forthcoming proposal, he said.

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

Community Financial Services Association of America et al. v. CFPB, W.D. Tex., 18-cv-295, 11/6/18

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

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

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