Fifth Circuit Extends Stay of Compliance Date of 2017 Payday Rule

A federal appellate court last week extended the compliance date of the CFPB’s 2017 payday rule until 286 days after resolution of an appeal involving that rule. The order by a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit effectively reversed the district court’s decision to set the compliance date for June 13, 2022. If the Fifth Circuit’s order is not reversed, the compliance date of the 2017 rule will not take effect until the payday lenders’ challenge to the 2017 rule is heard by the Fifth Circuit.

When issued in 2017, the rule included prescriptive underwriting provisions and payment provisions, but it now includes only the payment provisions, after the CFPB rescinded the rule’s underwriting provisions in 2020. The payment provisions prohibit lenders, including banks, from making a new attempt to withdraw funds from an account after two consecutive failed attempts without consumer consent. Those provisions exempt attempted transfers by institutions that hold the borrower’s account and do not charge an insufficient funds or overdraft fee for the attempted withdrawal.

The appellate court’s order does not alter the complete exemption in the rule for banks and other depository institutions that made 2,500 or fewer small-dollar loans in each of the current and previous years and for which these loans account for no more than 10% of revenues. The American Bankers Association advocated for this provision to protect banks’ flexibility to serve their customers’ small dollar credit needs.

The CFPB may seek en banc review of Fifth Circuit’s order, a review by all non-recused active judges of the Fifth Circuit. If a majority of the en banc court agrees to review the order, that process will take several months or longer.