Payday lenders: path to invalidate CFPB rules

On Monday, May 9, a Fifth Circuit panel asked whether a U.S. Supreme Court ruling required the Consumer Financial Protection Bureau (CFPB) to strike down a 2020 payday rule and reinstate the new regulatory process for payday loans.

Christian Vergonis, an industry trade associations lawyer who brought the case, argued that a 2020 rule that limited lenders’ access to borrowers’ bank accounts to collect payments was against due process. federal regulatory and Supreme Court precedents and should therefore be set aside.

The rule at issue is probably the most contentious rule adopted by the Bureau, and more than four years after its creation, none of its provisions are currently in force.

The rule was enacted in 2017 under the Obama administration and had two main prohibitions: a ban on making payday loans without assessing a borrower’s repayment capacity (the “underwriting provisions”) and a ban on attempting to withdraw funds from a Client’s Payday Account without the Client’s consent after two consecutive unsuccessful withdrawal attempts (the “Payment Arrangements”).

In 2020, with a new CFPB director, the agency repealed the underwriting provisions but left the payment provisions intact. The trade groups filed a lawsuit challenging the payment arrangements. A district court upheld that provision against challenge from the industry groups, but the compliance date with the payment provision was suspended until 286 days after the resolution of the trade groups’ appeal. The closing arguments for this appeal have been set for May 9, 2022.

This litigation is based in part on the authority the CFPB had at the time to issue the rule, and the fact that former President Donald Trump initially could not remove a CFPB director from office.

The 2020 CFPB decision to repeal the “subscription provision” follows a Supreme Court decision in June 2020, which declared the Obama-era agency structure unconstitutional.

In that case, the issue was whether the president had the power to remove a director of the CFPB during the six-year term of the head of the agency. When Congress created the agency in 2014, it said a president didn’t have that power and the director could only be fired for “inefficiency, neglect of duty, or malfeasance in office.”

In its judgment, the Supreme Court stated that “we therefore believe that the structure of the CFPB violates the separation of powers. We go on to say that the protection against dismissal of the Director of the CFPB is severable from other statutory provisions relating to the authority of the CFPB. The agency can therefore continue to operate, but its director, given our decision, must be removed by the president at will.

Read more: Supreme Court declares CFPB structure unconstitutional

During his closing arguments on Monday, May 9, Mr. Vergonis argued that the United States Supreme Court precedent was relevant because it deprived President Trump of the power to remove someone he “wanted to replace with people of his choosing” but “President Trump has been advised not to fire the director until the Supreme Court litigation is resolved.” Because the office manager was “incorrectly named” President Trump would not have chosen, there was a lack of authority, Mr. Vergonis argued. This has caused damage to professional associations which are entitled to a remedy, which is the invalidation of the CFPB rule, the lawyer claims.

The CFPB argued that there was no harm, but even if the court found there was, the only remedy would be for the agency to show that the rule was adopted in accordance with policies accepted by the Trump administration, not the invalidation of the rule. .

At issue is whether the CFPB could legally enact the rule, regardless of the situation with its director, or whether the entire agency was affected by its unconstitutional structure and therefore the rule had to be reissued.

Read more: Supreme Court rules CFPB structure unconstitutional