NEW ORLEANS—A Fifth Circuit Court panel is questioning whether a U.S. Supreme Court ruling requires the Consumer Financial Protection Bureau to invalidate a 2020 payday rule and to restart the process of new payday loan regulations.
Christian Vergonis, attorney for the payday loan industry trade associations that brought the case against the Bureau, argued that a 2020 rule that limited lenders from accessing borrowers' bank accounts to collect payments runs afoul of federal rulemaking procedures and the Supreme Court precedent, and it should therefore be struck down, Pymnts.com reported.
“The rule at stake is probably the most litigated rule adopted by the Bureau, and after more than four years since its inception, none of its provisions are currently in effect,” Pymnts.com noted.
Two Main Problems
The analysis notes the rule was promulgated in 2017 during the Obama administration and 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”).
In 2020, with a newly appointed CFPB director, the agency repealed the underwriting provisions but left intact the payment provisions. Trade groups filed a suit challenging the payment provisions. A district court has upheld this provision against the industry groups’ challenge, but the compliance date with the payment provision has been stayed until 286 days after the trade groups’ appeal is resolved, Pymnts.com reported.
“This litigation is partially based on the authority that the CFPB had at that time of issuing the rule, and the fact that former President Donald Trump could not initially remove a CFPB´s director from office,” Pymnts.com stated.
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