Challenges to Payday Rule’s Ability to Repay Provisions Denied

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On January 14, a D.C. federal judge granted the Consumer Financial Protection Bureau’s (CFPB) motion to dismiss a case filed by the National Association for Latino Community Asset Builders (NALCAB), after the NALCAB contested the CFPB’s decision to repeal the ability to repay requirements.

The Payday Rule has been both modified and challenged since its inception in 2017. In July 2020, the CFPB rescinded the ability to repay provisions from the Payday Rule, which contained provisions requiring lenders to vet borrowers’ ability to repay their loans without additional borrowing, along with provisions on vehicle-title lending and other forms of short-term, high-cost credit. The original rule also set restrictions on lender practices for collecting payments from borrowers’ bank accounts.

The NALCAB brought the instant suit in October 2020, alleging the CFPB violated federal rulemaking standards by modifying its 2017 Payday Rule. The suit asked the court to overturn the repeal and order the CFPB to implement the full, original 2017 Payday Rule.

NALCAB argued that the repeal of the ability to repay provisions increased the need for its services and thereby reduced the effectiveness of other NALCAB efforts. NALCAB also argued that it must devote more time training organizations that help consumers get out of the reborrowing cycles associated with payday loans. NALCAB asserted associational standing on behalf of one of its member organizations.

The judge ruled that the NALCAB did not establish a “concrete and demonstrable injury to its activities” regarding the repeal of the original Payday Rule. The judge stated, “Case law in this Circuit makes clear that there must be a separate perceptible impairment of the organization’s ability to provide services — something that makes it more difficult for the organization to conduct its activities. NALCAB has not plausibly alleged such an impairment.” The judge denied associational standing for the same reasoning and that the association had not demonstrated injury.

Our Take. This is one of the challenges the CFPB has faced regarding its Payday Rule. As discussed in our blog post, the Fifth Circuit has issued a stay, extending the June 2022 compliance date for the Payday Rule until after a final judgment is issued.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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