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  • 5th Circuit delays payday lending compliance until after resolution of appeal

    Courts

    On October 14, the U.S. Court of Appeals for the Fifth Circuit stayed the implementation of the payment provisions of the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule) for 286 days after the resolution of the appeal. The appellate court’s order contrasts with an order issued last month by the U.S. District Court for the Western District of Texas, which denied a request by the two trade group appellants to stay the compliance date pending appeal (covered by InfoBytes here). The district court previously upheld the 2017 Rule’s payment provisions (covered by InfoBytes here), finding that the Bureau’s ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official,” and that the payment provisions were not arbitrary and capricious. The district court’s order regarding the stay granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment. The 5th Circuit’s order, however, grants the trade groups’ motion to extend the stay of the compliance date until 286 days after resolution of the appeal.

    Courts Appellate Fifth Circuit CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance

  • District Court allows usury claims to proceed, says class action waivers do not bar certification

    Courts

    On October 14, the U.S. District Court for the Eastern District of Virginia granted class certification in an action alleging a payday lending operation violated RICO and Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. The plaintiffs alleged that the defendants (“founders, funders, [or] closely held owners of [a lender] that serviced the high-interest loans made by certain tribal lending entities”) participated in a lending scheme to circumvent state usury laws. The plaintiffs seek declaratory and injunctive relief, damages, and attorney’s fees and costs arising from claims alleging that the defendants, among other things: (i) used income derived from the collection of unlawful debt to further assist the operations of the enterprise; (ii) participated in an enterprise involving the unlawful collection of debt; (iii) collected unlawful debt; (iv) entered into unlawful agreements; (v) issued unlawful loans with interest rates exceeding 12 percent; and (vi) were thus unjustly enriched. The court granted class certification after finding that the existence of a class action waiver in loan agreements between plaintiffs and tribal lenders did not bar class certification. The court explained that “[b]ecause the class action waivers exist to ‘make unavailable to the borrowers the effective vindication of federal statutory protections and remedies,’ the prospective waiver doctrine applies.” The waivers were thus unenforceable.

    Courts Class Action Payday Lending Tribal Immunity Tribal Lending State Issues Usury Interest Rate RICO

  • District Court denies delay on payday lending compliance

    Courts

    On September 30, the U.S. District Court for the Western District of Texas denied a request made by two trade groups to stay the implementation of the payment provisions of the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule) while they appeal an earlier decision allowing the provisions to take effect. As previously covered by InfoBytes, the court upheld the 2017 Rule’s payment provisions, finding that the Bureau’s ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official.” The court also concluded that the payment provisions, as a matter of law, “are consistent with the Bureau’s statutory authority and are not arbitrary and capricious,” and that the Bureau properly considered the costs and benefits of such payment provisions. The court’s order, however, granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment.

    The plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit and asked the district court to stay the running of the 286-day stay pending appeal, such that compliance would not be required until 286 days after the appeal is resolved. The court rejected that request, stating that the plaintiffs “failed to make a sufficient showing to warrant a stay pending resolution of the appeal” and that “the equities do not support extending the stay of the compliance date beyond the court's 286-day stay from August 30, 2021.”

    Courts CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance Appellate Fifth Circuit

  • SEC charges Florida payday lender with making fraudulent misrepresentations in offering

    Securities

    On September 27, the SEC filed charges against a Florida-based payday lender and its CEO (collectively, “defendants”) for fraudulently raising more than $66 million through the sale of promissory notes to hundreds of retail investors, including members of the South Florida Venezuelan-American community. The SEC charges the defendants with falsely promising investors that their money would be used solely to make small-dollar, short-term loans and for associated costs. However, the defendants allegedly misappropriated roughly $2.9 million for personal use, transferred approximately $3.6 million to family and friends without an apparent legitimate business purpose, and used at least $19.2 million of investor funds to make Ponzi-like payments to other investors. The complaint further contends that the defendants mislead investors by promising high annual returns and representing that the business was profitable, and made misrepresentations about the safety and security of the promissory notes. The SEC’s complaint alleges violations of the registration and antifraud provisions of the federal securities laws, and charges the CEO with acting as an unregistered broker. The complaint seeks a permanent injunction against the defendants, disgorgement with prejudgment interest, civil penalties, and an officer and director ban against the CEO.

    Securities Enforcement SEC Payday Lending Small Dollar Lending Fraud

  • District Court: Arbitration provision is severable from a voided loan contract

    Courts

    On September 16, the U.S. District Court for the Southern District of Alabama granted a defendant tribal payday lender’s motion to dismiss and compel arbitration, ruling that an arbitration agreement in a loan contract is still valid even if an arbitration panel found the contracts were void. The plaintiff initiated an arbitration proceeding against the defendant alleging that payday loan contracts carrying interest rates between 200 and 830 percent were void because the defendant was not licensed under the Alabama Small Loans Act to extend such loans. An American Arbitration Association panel determined, among other things, that the defendant had waived any tribal sovereign immunity, “the transactions involved off-reservation commercial activities to which sovereign immunity does not apply,” and that the loans were entirely void because each of the loans was extended without a license. The plaintiff filed suit in state court to confirm the arbitration award and pursue a class action on the premise that the loans are usurious and should be declared void. The defendant removed the case to federal court and asked the court to dismiss the proposed class action and compel arbitration. The district court agreed with the defendant that the arbitration agreement in the voided loan contract remained binding despite the arbitrator’s earlier determination in the plaintiff’s favor. Specifically, the court disagreed with the plaintiff’s argument that the arbitrator’s determination meant that “no aspect of the contact survives,” stating that the plaintiff “overlooks a central tenet in binding precedential arbitration law: severability.” According to the court, “‘[a]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.’”

    Courts Arbitration Tribal Lending Usury Payday Lending Class Action State Issues Interest Rate

  • CFPB announces payday lending rule compliance date

    Federal Issues

    On September 7, the CFPB acting Director, Dave Uejio, released a statement regarding the decision by the U.S. District Court for the Western District of Texas to uphold the Payment Provisions in the CFPB’s 2017 rule on payday, vehicle title, and certain high-cost installment loans (covered by InfoBytes here). Ueijio hailed the decision as a reaffirmation of the Bureau’s “ability to protect borrowers from unfair and abusive payment practices in the payday lending and other markets covered by the rule.” Uejio then stated that compliance with the rule will become mandatory on June 13, 2022, and that the Bureau “expects lenders to follow the requirements of the payment provisions, consistent with the court’s order.”

    Federal Issues CFPB Payday Lending Agency Rule-Making & Guidance

  • Court temporarily stays compliance with CFPB’s payday rule

    Courts

    On August 31, the U.S. District Court for the Western District of Texas granted summary judgment in favor of the CFPB in an action filed by two trade groups challenging the payment provisions of the Bureau’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule), but stayed the August 19, 2019 compliance date for 286 days after final judgment as requested by the plaintiffs. As previously covered by InfoBytes, the plaintiffs challenged the 2017 Rule’s payment provisions’ compliance date and asked the court to set aside the 2017 Rule and the Bureau’s ratification of the payment provisions of the 2017 Rule as unconstitutional and in violation of the Administrative Procedures Act.

    In granting summary judgment to the Bureau, the court ruled that the ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official.” Among other things, the court also concluded that the payment provisions, as a matter of law, “are consistent with the Bureau’s statutory authority and are not arbitrary and capricious,” and that the Bureau properly considered the costs and benefits of such payment provisions. However, in granting the plaintiffs’ request for a longer stay, the court stated it was persuaded by the plaintiffs’ arguments “that they should receive the full benefit of the temporary stay and that a more substantial compliance date allows time for appeal,” consistent with the fact that the “stay was requested with 445 days left until the implementation deadline, and it was entered with 286 days remaining.” 

    Courts Payday Lending Payday Rule CFPB Administrative Procedures Act Agency Rule-Making & Guidance

  • CFPB and lenders file briefs for 2017 payday lending case

    Courts

    On August 6, the U.S. District Court for the Western District of Texas received briefs from the CFPB and the two trade groups (plaintiffs) challenging the CFPB’s 2017 final payday/auto title/high-rate installment loan rule (2017 Rule) regarding a compliance date for the 2017 Rule’s payment provisions. The briefs were filed in response to the court’s July 29 order requesting briefing “concerning what would be the appropriate compliance date if the court were to deny Plaintiffs’ motion for summary judgment and grant Defendants’ motion for summary judgment.” As previously covered by InfoBytes, in August 2020, the plaintiffs asked the court to set aside the 2017 Rule and the Bureau’s ratification of the payment provisions of the 2017 Rule as unconstitutional and in violation of the Administrative Procedures Act (APA). Earlier in July 2020, the Bureau issued a final rule revoking the 2017 Rule’s underwriting provisions and ratified the 2017 Rule’s payment provisions (covered by InfoBytes here) in light of the U.S. Supreme Court’s decision in Seila Law LLC v CPFB (covered by a Buckley Special Alert, holding that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau). 

    According to the CFPB’s brief, the stay of the compliance date should remain in place for no longer than 30 days after the Court’s decision on summary judgment. The CFPB argued, among other things, that a 30-day delay is consistent with the APA and should provide sufficient time to make any final preparations. In addition, the CFPB argued that complying with the payment provisions is not considered “onerous” because the provisions generally prohibit lenders from withdrawing payments for a covered loan from a borrower’s account after two consecutive attempts have failed due to lack of sufficient funds and because the provisions require lenders to give consumers certain notices, specifically before attempting to withdraw a payment for the first time and before making an “unusual” withdrawal attempt. In addition, the CFPB argued that “[f]urther extension of the stay is particularly unwarranted because the only basis for the stay disappeared over a year ago.”

    According to the plaintiffs’ brief, an “order lifting the stay…should set the compliance date no earlier than 445 days (or, at a minimum, 286 days) from the date the court lifts the stay, reflecting the time left for compliance when the stay was sought (or entered).” In addition to arguing that requiring immediate compliance would violate the APA, the plaintiffs argued, among other things, that “the 2017 Rule gave lenders twenty-one months before compliance would be required, which the Bureau viewed as necessary to give lenders ‘enough time for an orderly implementation period’ and to ‘reasonably adjust their practices to come into compliance.’” Moreover, the plaintiffs argued that the Bureau will need to set a new compliance date via notice-and-comment rulemaking if the stay did not toll the compliance period.

    Responses from both parties are due by August 16.

    Courts CFPB Payday Rule Payday Lending Administrative Procedures Act

  • Payday lender must comply with $50 million CFPB order

    Courts

    On July 30, the U.S. District Court for the District of Kansas granted a petition filed by the CFPB to enforce an administrative order that assessed more than $50 million in restitution and fines against a Delaware-based online payday lender and its CEO (collectively, “respondents”) while the parties await a decision from the U.S. Court of Appeals for the Tenth Circuit. As previously covered by InfoBytes, the CFPB filed an action in 2015 against the respondents for allegedly violating TILA and EFTA and for engaging in unfair or deceptive acts or practices concerning the terms of the loans they originated. The respondents also allegedly (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked their authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges.

    In January 2021, former Director Kathy Kraninger adopted an administrative law judge’s findings and conclusions, affirming the respondents violated TILA, EFTA, and the CFPA and concluding the respondents should be held jointly and severally liable for restitution amounting to more than $38.4 million. Kraninger further held the lender liable for a $7.5 million civil penalty and the CEO liable for a civil penalty of $5 million. In March, acting Director Dave Uejio issued an order denying the respondents’ motion to stay Kraninger’s final decision pending appellate review, but granted their request for a 30-day stay to allow them the opportunity to seek a stay from the 10th Circuit. In opposition to the Bureau’s petition to enforce the final order, the CEO argued, among other things, that the final order is not valid and enforceable. The court noted, however, that it is not permitted to stay enforcement of or suspend the final order. The power to suspend the final order or stay its enforcement belongs to the 10th Circuit—a request, the court noted, that the respondents did not seek when they filed their appeal. The CEO “has not cited any authority indicating that this Court may or should refuse to grant a petition for enforcement under this statute,” the court wrote. “Accordingly, the Court grants the petition for enforcement of the Final Order, and respondents are hereby ordered to comply with the Final Order by paying the restitution and civil penalties imposed and by cooperating as directed.”

    Courts CFPB Enforcement Payday Lending TILA EFTA CFPA Unfair Deceptive

  • District Court certifies “rent-a-tribe” class action

    Courts

    On July 20, the U.S. District Court for the Eastern District of Virginia certified a “rent-a-tribe” class action alleging an individual who orchestrated an online payday lending scheme violated the Racketeer Influenced and Corrupt Organization Act (RICO), engaged in unjust enrichment, and violated Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. The plaintiffs alleged the defendant partnered with the tribes to circumvent state usury laws even though the tribes did not control the lending operation. The court ruled that, as there was “no substantive involvement” by the tribes in the lending operation and evidence showed that the defendant was “functionally in charge,” the lending operation—which allegedly charged interest rates exceeding Virginia’s 12 percent interest cap—could not claim tribal immunity. The plaintiffs moved to certify two RICO classes, distinguished from each other based on the lending entity, each with two sub-classes of borrowers: (i) a usury sub-class of borrowers who either paid any principal, interest, or fees on their loans; and (ii) a unjust enrichment subclass of borrowers who paid any amount on their loans. The defendant challenged class certification, arguing that “due to his changing roles” in the lending operation over the class period “differences between class members will result in a need for a series of complicated mini-trials.” In certifying the two RICO classes, the court called the defendant’s recommendation to bring individual lender suits “an unnecessary and untenable burden on the judicial system.” Furthermore, the court wrote that “[w]ith respect to [p]laintiffs’ unjust enrichment claims, [the defendant] also attempts to argue that some [p]laintiffs did not confer a benefit on [the defendant] because they paid back less than they received on their loans.” However, the court noted that because Virginia law states that any contract in violation of the state’s usury law is void, “any money paid on a void contract could constitute a benefit for the purposes of an unjust enrichment.”

    Courts Class Action RICO Consumer Finance Tribal Lending Usury Interest Rate Payday Lending State Issues

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