The rule, after a round of legal challenges, will take effect March 30, 2025.
06/21/2024 10:00 A.M.
2.5 minute read
A final rule from the Consumer Financial Protection Bureau that was at the center of the U.S. Supreme Court case on the bureau’s funding structure will go into effect next year.
In a blog post, the CFPB reports that its rule with protections for payday and installment loans should take effect on March 30, 2025.
Community Financial Services Association of America Ltd. (CFSA) filed suit against the CFPB and Director Rohit Chopra challenging the bureau’s 2017 payday lending rule on the grounds the bureau was operating against the U.S. Constitution when the rule was enacted.
The 5th Circuit Court of Appeals ruled the funding through the Federal Reserve rather than congressional appropriations violates the U.S. Constitution, ACA International previously reported.
At the circuit court level, CFSA and Consumer Service Alliance of Texas challenged the validity of the CFPB’s 2017 payday lending rule when they filed suit.
According to court documents, the plaintiffs “contend that in promulgating that rule, the [b]ureau acted arbitrarily and capriciously and exceeded its statutory authority. They also contend that the [b]ureau is unconstitutionally structured, challenging the [b]ureau [d]irector’s insulation from removal, Congress’s broad delegation of authority to the [b]ureau, and the [b]ureau’s unique, double-insulated funding mechanism. The district court rejected these arguments.”
The Supreme Court then signed on by granting the CFPB’s petition (PDF) for certiorari to review whether the 5th Circuit Court of Appeals erred in its ruling that the bureau’s funding structure through the Federal Reserve rather than the congressional appropriations process violates the U.S. Constitution’s separation of powers.
In a landmark decision on the structure of the CFPB in May, the U.S. Supreme Court said the funding of the bureau through the Federal Reserve is constitutional, therefore reversing an October 2022 decision from the 5th Circuit Court, ACA previously reported.
Now that the case is over, the payday lending rule is slated to take effect in 2025, according to the CFPB.
“An existing court order pausing the rule is set to expire 286 days after the Supreme Court enters its judgment in the payday lenders’ case, which the [c]ourt [was] expected to do on June 17. As a result, the rule should go into effect on March 30, 2025,” it reports.
Ability to repay requirements in the rule were removed, therefore only “payment provisions” will take effect next March, according to an article from Ballard Spahr LLP.
The payment provisions:
- “Prohibit lenders from attempting to withdraw payment for a covered loan from a borrower’s account after two consecutive attempts have failed due to lack of sufficient funds, unless the borrower specifically provides new authorization to do so.
- Require lenders to give consumers certain notices, such as advance notice before attempting to withdraw a payment for the first time and notice of the consumer’s rights when two consecutive payment attempts fail.”
The plaintiffs have also requested a rehearing in the 5th Circuit following the Supreme Court’s decision, according to Ballard Spahr.
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