On August 31, 2021, the United States District Court for the Western District of Texas issued an opinion upholding the Consumer Financial Protection Bureau (CFPB) rule regulating payday loans. Community Financial Services Association of America, LTD., et al. vs. CFPB, Case #1: 18-CV-00295 (WD TX.) (Community v. CFPB).
For context, on November 17, 2017, the CFPB had published the rule “Payday, Vehicle Title, and Certain High-Cost Aversement Loans” (rule). The rule included an underwriting provision, which prevents lenders from making covered loans “without reasonably determining that consumers will have the ability to repay the loans” and a payment provision, which prevents certain lenders from attempting to withdraw from the account. a consumer after two failures. withdrawal attempts, without further authorization from the consumer. In 2020, the Supreme Court ruled that the leadership structure of the CFPB was unconstitutional. Seila Law LLC v CFPB, 140 S.Ct. 2183, 2192 (2020) (Seila Law). A few weeks after the Seila Law decision, the CFPB ratified the payment provision of the rule. 85 Fed. Reg. 4 1,905-02 (July 13, 2020).
Community c. CFPB was brought on behalf of the lenders and companies affected by the Rule and the ratification of the Rule. Community c. CFPB count on Seila Law to present a direct challenge to the payout provision of the rule. Ultimately, the district court rejected all of the plaintiffs’ arguments as to why the payment arrangements should be voided. The district court noted that the Supreme Court held that the “[Seila Law] standing does not mean that the actions taken by such an officer are void ab-initio and must be undone. Furthermore, the district court ruled that the ratification of the rule was “valid and repaired the constitutional prejudice”. Plaintiffs also argued that one of its members submitted a motion to change the rule to exclude debit card payments from the payments provision, and that the CFPB’s denial of that motion was arbitrary. and capricious. The district court disagreed, finding that the CFPB had “established the rational connection between the facts found and the choice made when it chose to include” debit card payments in the rule.