In an opinion authored by Chief Justice Roberts (the “DACA Opinion”), the Supreme Court has concluded that the rescission of the DACA program by the U.S. Department of Homeland Security (DHS) was arbitrary and capricious and hence in violation of the Administrative Procedure Act (APA). Several clients have asked whether the decision bodes ill for the CFPB’s anticipated rescission of the mandatory underwriting (that is, ability to repay) provisions of its payday lending rule. Our conclusion: Justice Roberts has once again shown a reluctance to cast the deciding vote with the Conservative wing of the Court against a core Obama-era policy. However, we do not believe that the payday rule implicates the institutional concerns we perceive to have motivated Justice Roberts in the DACA Opinion or the technical APA infirmities he identified. We continue to believe that the CFPB has ample authority to rescind the mandatory underwriting provisions in former Director Cordray’s payday rule.

Background: In 2012, President Obama’s DHS adopted the DACA program by issuance of a memorandum without notice and comment under the APA. DACA granted a renewable two-year period of “deferred action” that made approximately 1.7 million aliens otherwise removable from the United States eligible to remain in the country. By granting this deferred action, the memorandum also made the DACA beneficiaries eligible for certain state and federal benefits under existing regulations, including Medicare and Social Security.

Subsequently, in 2014, the DHS attempted to broaden DACA and implement the related “DAPA” program, again by memorandum and without notice and comment. Twenty-six states filed suit to enjoin the implementation of DAPA and the DACA expansion. A federal district court granted an injunction, the Fifth Circuit affirmed and so did an evenly divided Supreme Court.

In June 2017, after the election, the DHS rescinded the 2014 memorandum. However, several of the plaintiff states wrote then-Attorney General Sessions, contending that the 2012 DACA memorandum was also legally defective because, “just like DAPA, DACA unilaterally confers eligibility for . . . lawful presence without any statutory authorization from Congress.” They threatened to amend their complaint to challenge DACA if the administration did not rescind the 2012 memorandum creating DACA by September 5, 2017. On September 4, then-Attorney General Sessions directed the DHS to rescind DACA. The next day, the DHS rescinded DACA, also through a memorandum. The litigation giving rise to the DACA Opinion ensued.

The DACA Opinion: In the DACA Opinion, Chief Justice Roberts, writing for a 5-4 majority, held that the DHS’ rescission of DACA violated the APA. The DACA Opinion points to perceived infirmities in the DHS action that are unlikely to be implicated by any rescission of the mandatory underwriting provisions of the payday rule:

• The DACA Opinion stated that DACA had two separate elements: (1) forbearance from removal from the country; and (2) financial benefits associated with “lawful presence” in the country. According to the DACA Opinion, the Fifth Circuit decision addressed the financial benefits created by the 2014 memorandum but not forbearance from removal. The DACA Opinion held that, in rescinding DACA, including its forbearance provisions, the DHS acted arbitrarily and capriciously in violation of the APA. According to Justice Roberts, the DHS transgressed by failing to consider the possibility of eliminating the financial benefits created by the 2012 memorandum while preserving the forbearance from removal.
• Further, the DACA Opinion held that DHS acted arbitrarily and capriciously by failing to consider reliance interests of DACA beneficiaries, their dependents and other persons and entities associated with them.
• Finally, the DACA Opinion found that DHS policy justifications for its cancellation of DACA could not support DACA cancellation because they were not expressed at the time of the cancellation and were not tethered to any new proceeding to revoke DACA.

As noted above, the supposed defects in the DACA rescission articulated in the DACA Opinion would not seem to apply to any rescission of the mandatory underwriting provisions of the payday rule. The core identified problem in the DHS’ rescission of DACA was that the DHS was operating on the incorrect assumption that it was compelled by the Fifth Circuit and the Attorney General to rescind DACA in its entirety. By contrast, the CFPB is acting voluntarily and of its own initiative to re-examine the mandatory underwriting provisions from an evidentiary and policy standpoint. Nothing in the DACA Opinion suggests that the APA forecloses any review of an existing rule in its entirety or in part.

The DACA Opinion also found that the DHS acted arbitrarily and capriciously in failing to consider reliance issues implicated by its decision to rescind DACA. However, there are no obvious reliance interests the CFPB must study before rescinding the mandatory underwriting provisions of the payday rule, which have never gone into effect.

The DACA Opinion refused to consider policy rationales that were first articulated by the DHS several months after its decision to rescind DACA. However, this refusal was based on the technical (some would say hyper-technical) conclusion that the policy rationales were (improper) post hoc justifications for the agency action and were not (proper) justifications for a new rescission decision. This part of the DACA Opinion makes clear that policy arguments are fair game for a new rescission rulemaking.

Ironically, the DACA Opinion actually supports in one important respect small businesses engaged in payday and other types of lending. Our firm has led the charge in challenging the validity of decisions of the U.S. Small Business Administration to exclude lending businesses from eligibility to obtain Paycheck Protection Program (PPP) loans and related loan forgiveness under the CARES Act. The DACA decision makes it clear that an agency must articulate the bases for its actions at the time of the agency action. The SBA has failed to explain why lending businesses should be denied PPP benefits. Its failure to do so is arbitrary and capricious under the DACA Opinion.