The payday lending industry,
The fight is no longer about whether the CFPB's funding structure is unconstitutional, an argument that the justices batted down 7-2 on Thursday. And it's not about the most heavily discussed part of the 2017 payday lending rule, which would have required lenders to verify that borrowers are able to repay the expensive loans they take out. The Trump administration later
The legal fight is now about what remains of the payday rule, which says that lenders can't seek to pull money from customers' accounts more than twice in a row if their loan repayment fails.
Hours after the Supreme Court's ruling on Thursday, payday industry lawyers indicated in a new court filing that they're gearing up to fight the CFPB on the two-attempt limit. The motion is the first step toward appealing an earlier appeals court ruling that upheld the CFPB rule.
"We continue to believe that the challenged CFPB rule is legally flawed, threatens access to credit, and harms the millions of American consumers who rely on small-dollar loans to manage budget shortfalls and unexpected expenses," said Chris Vergonis, a lawyer at the firm Jones Day who represents the Community Financial Services Association of America trade group.
A senior CFPB official told reporters Friday that the agency is ready for that fight, vowing to "continue to defend the rule in court and against all of any new challenges they might raise."
Consumer advocates who have long fought for a crackdown on payday lenders slammed the industry for its latest attempt to fight the CFPB.
"It's a sign of desperation," said Lauren Saunders, associate director at the National Consumer Law Center. "It's a sign of how fundamentally predatory your business model is, that after they've made unaffordable loans and put people into a debt trap, they can't even comply with a rule that merely prevents them from continuing to hit people's accounts."
Those failed attempts trigger overdraft and non-sufficient funds charges that can often run above $30 each, Saunders said.
The CFPB rule, which has never taken effect, would prohibit payday lenders from making another attempt after a payment fails twice. Right now, lenders face a limit of three attempts under rules that govern their access to electronic payment rails.
But tougher rules are still needed, said Adam Rust, director of financial services at the Consumer Federation of America. He pointed to some payday lenders' infamous use of "robo-debiting" years ago, at a time when rules on access to the electronic payment rails were already in place.
The remaining portion of the CFPB's payday lending rule is less well known than the now-scrapped "ability-to-repay" requirement. But it is no less important in protecting consumers against abusive practices, Rust said, arguing that the industry is fighting for its right to engage in a "race to the bottom" on payment practices.
Payday lenders have long contended that the CFPB's payment limitations are unnecessary. That's partly due to a 2015 change in payment rail rules that laid out new red flags for companies whose payment requests often failed.
The CFPB did not account for those changes when it wrote the two-attempt limit, Edward D'Alessio, the head of the payday trade group INFiN, wrote in a 2019 letter to the CFPB.
But the agency, then led by Trump appointee Kathleen Kraninger, did not scrap that portion of the payday lending rule. It instead revoked only the portion that would have required payday lenders to determine if a borrower could repay a loan before taking it out.
The industry had argued the latter provision would have devastating consequences, cutting off access to credit for people whose low credit scores shut them out of traditional bank loans.
D'Alessio, the INFiN head, said in a statement Friday that the group has spent years ensuring that the CFPB's staff and leadership understand the payday lending industry and "the millions of satisfied customers we serve."
The two-attempt regulation remains "unnecessary, redundant, and detrimental to our members' ability to manage consumers' loan repayments through preferred, convenient mechanisms," D'Alessio said. Nonetheless, InFIN members have been "undertaking significant systems upgrades" to prepare for the two-attempt rule.
"We now await clarity from the courts and the CFPB on the effective date as well as any other new interpretative guidance to ensure compliance," D'Alessio said.
Consumer groups dispute payday lenders' contentions and argue products are abusive, pushing vulnerable consumers further into debt. They support the payday rule's limitations on bank account pulls but also hope the agency will revisit the ability-to-repay element of the rule. Still, they noted the agency can continue cracking down on lenders it sees as abusive.
"The CFPB is taking action against lenders who are engaged in set-up-to-fail lending, and they don't necessarily need a rule to do that," said Saunders of NCLC.
Neither of the payday rule's original provisions have ever kicked in, since the rule has been mired in lawsuits and a broader fight over whether the CFPB's structure is constitutional.
A panel of judges at the Fifth Circuit Court of Appeals, long known for its conservative bent, upheld the two-attempt limit in 2022 and ruled against payday lenders' claims that the agency's proposal had been "arbitrary and capricious." It upheld the rule despite the headline finding in the case — that the agency's funding structure was unconstitutional.
The Supreme Court this week overturned the part of the appeals court's ruling that dealt with the CFPB's funding structure. The case is now back at the appeals court for further proceedings.
In a letter to the appeals court late Thursday, the lawyer for the payday lender group CFSA argued the appeals court had "erred" in siding with the CFPB on the two-payment limit. In deciding the CFPB case, the court did so with a three-judge panel, a customary move. The CFSA said it intends to ask for a "rehearing" in front of the full appeals court.
The legal maneuver could again block the two-payment limit, which lawyers say would otherwise likely take effect early next year.
If it does become enforceable, payday lenders would have to train staff on the new rule, update their disclosures to consumers and make sure their systems are ready to implement the change.
The savvier companies have long been preparing for the possibility of the rule taking effect and are "not going to have any problem being ready," said Justin Hosie, a partner at the law firm Hudson Cook whose clients include payday lenders.
Other companies were "just sort of hoping" the CFPB rule "would go away" as a result of a Supreme Court ruling, and will now have to make preparations, he added. Hosie also said there are some "gray areas in the rule" that he's hoping the CFPB will be able to clarify in the coming months.
All of which means some payday lenders are gearing up for "what might feel like a mad dash to get ready," he said.
"By and large the industry has tried to keep their eye on what the requirements will be," Hosie said. "But now it's just a matter of actually implementing systems and getting training going."
