Payday and title loans are short-term loans that lenders typically offer without assessing borrowers’ ability to repay. Lenders’ failure to underwrite traps many borrowers in expensive cycles of unaffordable debt. Too often, financially distressed consumers are forced to take out loan after loan because they cannot afford to repay the first one.
In the fall of 2017, after more than five years of outreach and research, the Consumer Financial Protection Bureau (CFPB) issued a regulation to address harms to consumers caused by payday loans, vehicle-title loans, and certain other loans with similar features. The 2017 rule was based on findings that a substantial population of borrowers is harmed by payday and title lenders’ practice of making loans without reasonably determining that borrowers have the ability to repay their loans. The CFPB concluded that the practice is unfair and abusive and adopted measures to protect consumers from the harm it causes. The 2017 rule also included measures to protect consumers from the abusive practice of lenders repeatedly attempting to debit borrowers’ accounts.
In July 2020, the CFPB issued a new rule repealing core aspects of the 2017 rule, including the protections against lenders making loans without reasonably determining that borrowers have the ability to repay. The 2020 rule creates a new evidentiary standard and relies on new interpretations of the statutory definitions of “unfair” and “abusive.”
In October 2020, Public Citizen, representing the National Association for Latino Community Asset Builders (NALCAB) and co-counseling with the Center for Responsible Lending, filed a lawsuit challenging the 2020 rule as arbitrary and capricious and in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Arguing that NALCAB lacked standing, the CFPB and an industry association that had intervened as a defendant then moved to dismiss the case. In January 2022, the court granted the motions to dismiss.