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Nearly four years after the Consumer Financial Protection Bureau (“CFPB”) first promulgated its rule regulating payday loans, a federal district court in Texas upheld the payment provisions of the rule against various constitutional and other challenges. The court, which had previously stayed the rule’s original compliance date, also provided that the provisions would become effective in 286 days—on June 13, 2022.

The CFPR first promulgated the payday lending rule in November 2017. The original rule contained two major components—underwriting provisions and the payment provisions that the court upheld. The underwriting provisions would have required payday lenders to ascertain a borrower’s ability to repay before making a covered loan. The payment provisions prohibit covered lenders from making more than two attempts to withdraw pre-authorized payments from a consumer’s account if two consecutive withdrawal attempts fail due to a lack of sufficient funds. Two industry trade groups filed suit in 2018, challenging both the underwriting provisions and the payment provisions. The court stayed the compliance date of the rule while the litigation was pending, and for long periods stayed the litigation itself while constitutional challenges to the CFPB’s structure and other related litigation was pending. The CFPB, then under new leadership, revoked the underwriting provisions of the rule in 2020. So what was left of the lawsuit was a challenge to the remaining payment provisions.

In its recent decision, the court rejected all of the trade associations’ challenges to the payment provisions. Among other things, the court held that although the CFPB was unconstitutionally structured at the time the rule was issued in 2017, the rule was not void ab initio, and the CFPB Director’s ratification of the rule in 2020 remedied any constitutional problems with the rule’s issuance. The court also rejected a variety of Administrative Procedure Act (“APA”) challenges to the rule—including arguments that the rule exceeded the CFPB’s statutory authority or was arbitrary and capricious. Relying on the APA’s deferential standard of review, the court specifically upheld the CFPB’s findings that the practices prohibited by the payment provisions are both unfair and abusive, although its analysis of the abusive standard was fairly cursory.

Having upheld the payment provisions, the court then had to decide when they would become effective. After ruling for the CFPB on all of the other issues before it, the court ruled in favor of the plaintiffs with respect to the effective date, and rejected the CFPB’s request that the provisions be made effective within 30 days. Instead, the court held that parties “should have the full benefit of the temporary stay” of the effective date that the court had previously ordered, and extended the compliance date for 286 days—the compliance period remaining when the Court had first entered its stay).

The CFPB is facing a separate lawsuit from consumer advocates challenging the CFPB’s 2020 repeal of the underwriting provisions of the original payday rule. The CFPB has filed a motion to dismiss that case on standing grounds, which is pending before the court.