DC Federal Court Dismisses NALCAB Lawsuit Challenging CFPB’s Cancellation of Payday Loans Rule Underwriting Provisions | Ballard Spahr LLP


The DC Federal District Court granted the requests filed by the CFPB and the Consumer Financial Services Association (CFSA) dismiss the lawsuit provided by the National Association of Latino Community Asset Builders (NALCAB). (The ACSA had intervened in the lawsuit.) In the lawsuit, NALCAB sought to overturn the July 2020 CFPB Final Rule (2020 Rule) nullifying the “Capacity to Repay” (ATR) or “Underwriting Provisions”. Required” in its 2017 Final Rule on Payday/Auto Title/High Installment Loan (2017 Rule).

The district court held that NALCAB had neither organizational status in its own name nor associative status in the name of its members to bring the lawsuit. To have organizational status, the NALCAB had to show that the cancellation of the provisions of the ATR “materially impairs[ed] its ordinary operations. NALCAB alleged that the cancellation necessitated increased spending because of the need to continue to devote resources to educating its member organizations and their staff on issues related to unsecured lending. The court found that these increased expenses did not constitute recognizable organizational harm to NALCAB.

The district court also found that NALCAB’s attempt to assert association status on behalf of one of its members, Mission Economic Development Agency (MEDA), failed for the same reason. NALCAB argued that MEDA suffered recognizable harm from the 2020 rule because it caused more MEDA clients to need more financial coaching and thus harmed 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 recognizable organizational harm to MEDA.

The NALCAB lawsuit had created a threat of reinstatement of the ATR provisions. Unless the CFPB, under Director Chopra, decides to reopen its payday loan rules (which most observers think is unlikely), the lawsuit’s dismissal has eliminated that threat for now. However, it is likely that the industry will continue to face CFPB scrutiny of its underwriting practices under Director Chopra. Although he approved the CFPB’s filing of the motion to dismiss, former Acting Director Uejio made it clear when filing the motion 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 duty to respond to the lawsuit,” which he did by filing a brief” addressing only the jurisdiction of the court to hear the case”. He added that “the Bureau continues to believe that repayment capacity is an important underwriting standard. To the extent that small lenders’ business models continue to rely on consumers’ inability to repay, these 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 of the 2017 rule if the CFSA fails in the Fifth Circuit. CASA appealed the final judgment of the district court granting the CFPB’s motion for summary judgment in the ACSA lawsuit challenging the payment arrangements. The District Court suspended the payment provision compliance date until 286 days after August 31, 2021 (which would have been until June 13, 2022). After the appeal was filed, the Fifth Circuit issued an order suspending the payment provision compliance date until 286 days after the Trade Groups appeal is resolved.

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