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. In July 2020, the CFPB issued a new rule that repeals core aspects of the 2017 rule.
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. Financially distressed consumers are forced to take out loan after loan because they cannot afford to repay the first one. The 2017 rule found 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In the 2020 rule, the CFPB repealed the protections against lenders making these loans without reasonably determining that borrowers have the ability to repay. The 2020 rule creates a new evidentiary standard and purportedly new interpretations of the statutory definitions of “unfair” and “abusive,” and criticizes the 2017 rule for not having met these new standards.
In October 2020, Public Citizen, representing the National Association for Latino Community Asset Builders (NALCAB) and co-counseling with the Center for Responsible Lending (CRL), filed a lawsuit in the District Court for the District of Columbia challenging the 2020 rule. The complaint explains that the rule is arbitrary and capricious, violates the Dodd-Frank Wall Street Reform and Consumer Protection Act, and was adopted without following rulemaking requirements. Plaintiff filed an amended complaint in January 2021.