Last year, the Consumer Financial Protection Bureau (CFPB) announced a new rule (the “payday rule”) that requires payday lenders to take additional steps to ensure borrowers are able to pay back their loans on time, launching an ongoing saga involving payday-lending trade groups, consumer protection advocates and the CFPB.
As it stands, lenders are on the hook to comply with the payday rule beginning August 2019. The rule prohibits lenders from making short-term and longer-term balloon payment loans, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay the loans according to their terms.
But whether the rule’s compliance provisions will actually take effect next August remains uncertain. The future of the payday rule became hazy in November 2017 when former CFPB director Richard Cordray resigned. President Donald Trump then appointed interim director Mick Mulvaney, who in January 2018 announced the CFPB would engage the rulemaking process to reconsider the rule.
Then in April, two payday-lending trade groups - the Consumer Financial Service Association of America, Ltd. and the Consumer Service Alliance of Texas - filed a lawsuit in Texas federal court seeking to invalidate the rule. The CFPB joined the trade groups in a motion requesting a delay of the compliance date. Four consumer advocacy groups filed an amicus brief opposing the joint motion. The court issued a decision on June 12 staying the litigation but leaving intact the August 2019 compliance deadline.
This decision comes not long after Congress failed to roll back the payday rule entirely. Both the House and Senate introduced Congressional Review Act resolutions to repeal the rule but neither passed before the May 16 voting deadline. Yet, as an alternative, two new House bills, H.R. 3299 and H.R. 4439, could allow payday lenders to affiliate with national banks and avoid state laws capping interest rates.
Ohio lawmakers are paying close attention to the fate of the payday rule, too. In a rare July session, the Ohio Senate passed H.B. 123, a bill with a contentious 17-month long history that places new restrictions on making short-term loans, some similar to the payday rule. With the Senate making minor changes, the bill now goes back to the Ohio House for approval.
But with a congressional repeal of the payday rule off the table, lenders nationally are on the clock as the August 2019 deadline looms closer. Still, the two trade groups are trying their luck in court again, having now filed a motion asking the court to reconsider its June 12 decision. The CFPB followed with a motion in support of the reconsideration, while the four consumer advocacy groups have asked the court for leave to file another amicus brief in opposition.
Unless the motion to reconsider is granted, a court-ordered delay of the August deadline is likely out, too. That means the CFPB would be left with reconsidering the payday rule itself through the time-intensive rulemaking process. With only 13 months left before lenders must be set to comply, the CFPB could choose to expedite the process by extending the compliance date first and substantively changing the rule later.
In the meantime, lenders should keep a close eye on whether the Texas federal court grants the trade groups’ motion to reconsider staying the compliance date. If the motion is denied, CFPB would have to extend the payday rule’s compliance deadline itself. Until the fate of the payday rule is clear, lenders should be prepared to comply by August 2019.
Stay tuned for our upcoming analysis of the Ohio payday lending bill, H.B. 123.
[View source.]
