On July 30, 2024, Heights Finance Holding Co. f/k/a Southern Management Corporation and a group of its wholly-owned, state-licensed subsidiaries (collectively, “Southern”) filed a motion for judgment on the pleadings (the “JOP Motion”) in the lawsuit filed by the CFPB against Southern in South Carolina federal district court. That lawsuit alleges that Southern violated the Consumer Financial Protection Act’s (“CFPA’s) prohibition on UDAAPs by “churning payment-stressed borrowers in fee-laden refinances.” We have already written about Southern’s argument that the lawsuit must be dismissed because the CFPB lacked constitutionally-authorized funds to prosecute the case due to there having been no “combined earnings of the Federal Reserve System” since September 2022 while Dodd-Frank mandates that the CFPB can only be funded out of such “combined earnings.” This blog will focus on Southern’s other arguments.
The second argument that the JOP Motion makes is that the entire complaint brought against Southern is the product of an unconstitutional delegation of power. Southern argues that the CFPA delegates UDAAP authority without “sufficiently intelligible principles to guide the CFPB’s determination about what is an unfair or abusive act or practice.” Southern further argues that the CFPB’s immense regulatory impact on the nation’s economy and financial institutions makes the unconstitutional delegation even more egregious. In other words, Congress provided “the CFPB with only ‘vague terms,’ before setting the CFPB loose to exert its vast powers[.]”
Southern’s third argument is that the entire complaint is the product of an interpretation of the CFPA that violates the major questions doctrine by creating new “disclosure, ability-to-repay, and other requirements for installment loans when the requirements do not exist under [the Truth-in-Lending Act or the CFPA[.]” Similarly, Southern argues that the CFPB avoided the procedural safeguards in the notice-and-comment rulemaking process of the Administrative Procedures Act and violated the Constitutional requirement to provide due process of law by attempting to create these new requirements through litigation.
The JOP Motion then turns its attention to the individual counts, first arguing that the CFPB’s allegation that Southern “unfairly pushed payment-stressed borrowers into refinancing their existing loans in violation of the CFPA” does not meet the definition of “unfair” under the CFPA because the complaint fails to allege (1) that Southern’s acts or practices were likely to cause substantial injury to consumers; (2) that there was a substantial injury that was not reasonably avoidable by consumers; or (3) that the purported substantial injury was not outweighed by countervailing benefits to consumers or to competition. The JOP motion continues by arguing that the CFPB’s two count allegation of abusiveness for “churning payment-stressed borrowers in fee-laden refinances” fails to meet the definition of “abusive,” because the complaint fails to allege (1) a lack of understanding on the part of borrowers; or (2) that Southern took unreasonable advantage of any purported lack of understanding.
The JOP Motion concludes with a brief argument that all counts are barred by the applicable statutes of limitation because the CFPB did not plead in the complaint the date that it discovered any of the alleged violations of the CFPA.
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