Court Dismisses Challenge to CFPB Payday Rule Repeal

A district court has dismissed a challenge to the Consumer Financial Protection Bureau’s (“CFPB”) repeal of the underwriting provisions of its 2017 payday rulemaking. The CFPB’s payday lending rule has a long and tortured history. First promulgated in 2017, the rule had two main prohibitions—a prohibition on making payday loans without assessing a borrower’s ability to repay (the “underwriting provisions”) and a prohibition on attempting to withdraw funds from a payday customer’s account without customer consent after two consecutive failed withdrawal attempts (the “payment provisions”). Shortly after the rule was promulgated, two industry trade groups sued to challenge both aspects of the rule. Then CFPB leadership changed and the parties agreed to stay the rule’s compliance date while the CFPB considered what changes, if any, to make to the rule. In 2020 the then-new leadership repealed the underwriting provisions of the rule, but left intact the payment provisions. Industry’s suit was thus limited to the still-extant payment provisions; a district court has upheld those provisions against the industry groups’ challenge but the compliance date has been stayed further pending resolution of the trade groups’ appeal.

In the meantime, an association of community and economic development organizations sued to challenge the 2020 repeal of the underwriting provisions of the original rule. That lawsuit has now been dismissed for lack of standing, with the district court finding that the plaintiff association had not suffered any cognizable harm due to the repeal of the underwriting provisions. Of course, in the interim, CFPB leadership has changed again; it may be that the CFPB will again seek to promulgate some type of underwriting restrictions. Even without the payday rule, the CFPB has made clear that credit products that “are not underwritten based upon the likely ability of the consumer to make the required (or, in the case of adjustable rate products, potentially required) payments over the term of the loan” may reflect increased risk of unfair, deceptive or abusive acts or practices.

So where do things stand?

• The underwriting provisions of the original payday rule have been repealed and the legal challenge to that repeal has been dismissed. So the underwriting provisions are no more. But of course, that dismissal may be appealed and new CFPB leadership may again seek to impose underwriting provisions through a new rulemaking. And the CFPB might still pursue certain conduct through its general UDAAP authority.
• The payment provisions have been upheld. But the compliance date of those provisions has been stayed pending resolution of the industry trade groups’ appeal of that decision.
• Bottom line—over four years after the rule was promulgated none of its provisions are currently in effect.