D.C. federal court dismisses NALCAB lawsuit challenging CFPB’s rescission of payday loan rule underwriting provisions

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The D.C. federal district court has granted the motions filed by the CFPB and the Consumer Financial Services Association (CFSA) to dismiss the lawsuit brought by the National Association for Latino Community Asset Builders (NALCAB).  (The CFSA had intervened in the lawsuit.)  In the lawsuit, the NALCAB sought to overturn the CFPB’s July 2020 final rule (2020 Rule) rescinding the “ability-to-repay” (ATR) or “mandatory underwriting provisions” in its 2017 final payday/auto title/high-rate installment loan rule (2017 Rule).

The district court found that the NALCAB had neither organizational standing on its own behalf nor associational standing on behalf of its members to bring the lawsuit.  To have organizational standing, the NALCAB was required to show that the rescission of the ATR provisions “perceptibly impair[ed] its ordinary operations.”  The NALCAB alleged that the rescission required increased expenditures because of the need to continue to devote resources to educating its member organizations and their staff about issues related to no-underwriting lending.  The court concluded that such increased expenditures did not qualify as a cognizable organizational injury to the NALCAB.

The district court also found that the NALCAB’s attempt to assert associational standing on behalf of one of its members, Mission Economic Development Agency (MEDA), failed for the same reason. The NALCAB argued that MEDA had a cognizable injury stemming from the 2020 Rule because it caused more MEDA clients to need more financial coaching and thus impaired MEDA’s work.  According to the district court, an increased demand for MEDA’s services and a reallocation of resources to meet that demand was not sufficient to qualify as a cognizable organizational injury to MEDA.

The NALCAB lawsuit had created a threat of the ATR provisions being reinstated.  Unless the CFPB under Director Chopra decides to reopen its payday loan rulemaking (something which most observers think is unlikely), the dismissal of the lawsuit has removed that threat for now.  However, it is likely the industry will continue to face CFPB scrutiny of its underwriting practices under Director Chopra.   Despite approving the filing of the CFPB’s motion to dismiss, former Acting Director Uejio made clear, when the motion was filed, that the motion was not intended to indicate that the “new CFPB” supported the 2020 Rule.  He explained in a blog post that the 2020 Rule “was challenged in court and the Bureau had a legal obligation to respond to the lawsuit,” which it did by filing a brief “addressing only the court’s jurisdiction to hear the case.”  He stated further that “the Bureau continues to believe that ability to repay is an important underwriting standard.  To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.”

The industry also continues to face the very real possibility that it will be required to comply with the payment provisions in the 2017 Rule if the CFSA is unsuccessful in the Fifth Circuit.  The CFSA has appealed from the district court’s final judgment granting the CFPB’s summary judgment motion in the CFSA’s lawsuit challenging the payment provisions.  The district court stayed the compliance date for the payment provisions until 286 days after August 31, 2021 (which would have been until June 13, 2022).  After the appeal was filed, the Fifth Circuit entered an order staying the compliance date of the payment provisions until 286 days after the trade groups’ appeal is resolved.

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