Cal. Pawnbrokers Ass'n, Inc. v. Carter
| Decision Date | 07 November 2016 |
| Docket Number | No. 2:16-cv-02141-JAM-KJN,2:16-cv-02141-JAM-KJN |
| Parties | CALIFORNIA PAWNBROKERS ASSOCIATION, INC., a California Non-Profit Corporation, on behalf of itself and its members, Plaintiff, v. ASHTON B. CARTER, in his official capacity as Secretary of Defense; and THE UNITED STATES DEPARTMENT OF DEFENSE, Defendants. |
| Court | U.S. District Court — Eastern District of California |
This matter is before the Court on California Pawnbrokers Association's ("Plaintiff") Motion for Preliminary Injunction against Ashton B. Carter and the United States Department of Defense (collectively "Defendants"). A hearing on this Motion took place on November 1, 2016. For the reasons set forth below, Plaintiff's Motion for Preliminary Injunction is denied.
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The Department of Defense ("Department") is responsible for promulgating regulations to implement the Military Lending Act ("MLA"). The purpose of the MLA is to protect members of the military and their dependents from the financial pitfalls related to consumer credit and ensure military readiness. See Memorandum Opinion, Huntco Pawn Holdings, LLC v. U.S. Department of Defense, Civil Action No. 16-cv-1433 (CKK) (D.D.C. Oct. 3, 2016) at 3 ("Huntco"). The MLA achieves this by limiting the interest-rates that lenders can impose on loans and requiring lenders to fulfill certain other terms and conditions when extending credit to covered borrowers. See Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 80 Fed. Reg. 43560, 43560 (Jul. 22, 2015) () ("2015 Rule"). Prior to 2015, the Department limited the definition of consumer credit to payday loans, vehicle title loans, and refund anticipation loans. Opp. at 3. The Department also created a safe harbor by which creditors could avoid the MLA's restrictions and penalties if they obtained a disclosure statement from the applicant stating that the applicant was not a covered borrower ("self-certification"). Id. Use of the self-certification was entirely optional and creditors were free to use other means to determine whether an applicant would be covered under the MLA, though other means would not qualify for the safe harbor. Id.
In 2015, after notice-and-comment rulemaking, the Department changed its regulations, expanding the definition of consumer credit and changing the terms of the safe harbor provision. 2015Rule, 80 Fed. Reg. 43560. "Consumer credit" now includes all credit currently "subject to the disclosure requirements of the Truth in Lending Act [("TILA")], codified in Regulation Z." Id.; 32 C.F.R. § 232.3(f)(1). With this expansion, the MLA, for the first time, covers pawn transactions. Mot. at 4; see Truth in Lending, 61 Fed. Reg. 14952 (Apr. 4, 1996) () ( official staff interpretation to include pawn transactions). The new safe harbor "permits a creditor to legally conclusively determine whether a consumer is a covered borrower by using information obtained either: (i) Directly or indirectly from the MLA Database or (ii) in a consumer report from a nationwide consumer reporting agency or a reseller who provides such a consumer report." 2015 Rule, 80 Fed. Reg. 43560, 43577; 32 C.F.R. § 232.5(b). "A search of the Department's database requires the entry of the consumer's last name, date of birth, and Social Security number." 32 C.F.R. § 232.5(b)(2)(i)(A).
CAPA filed the present suit seeking to stay and ultimately enjoin enforcement of the sections of the 2015 Rule that include pawn transactions and pawnbrokers in their definitions of consumer credit and creditor. Mot. at 1. Alternatively, CAPA seeks to stay the new safe harbor provision and restore the borrowers' self-certification from the prior rule. Id. CAPA filed an Ex Parte Application for Temporary Restraining Order on September 16, 2016, to stop the 2015 Rule from going into effect on October 3rd. ECF No. 11. This Court denied the Ex Parte Motion and set the matter for hearing to determine whether the Court should issue a preliminary injunction. ECF No. 15. OnOctober 12, 2016, the District Court for the District of Columbia made a final ruling on the merits in Huntco, a case raising similar challenges to the 2015 Rule. See Order Granting Joint Motion to Convert Opinion and Order into Final Judgment, Huntco Pawn Holdings, LLC v. U.S. Department of Defense, Civil Action No. 16-cv-1433 (CKK) (D.D.C. Oct. 3, 2016). This Court ordered supplemental briefing with respect to Defendants' Motion to Change Venue (not at issue here) and the preclusive effect, if any, of the Huntco decision on this matter.1 ECF 21.
A preliminary injunction is "an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. Natural Resources Defense Counsel, Inc., 555 U.S. 7, 22 (2008). To obtain a preliminary injunction, a plaintiff must demonstrate that: (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. Boardman v. Pacific Seafood Grp., 822 F.3d 1011, 1020 (9th Cir. 2016) (quoting Winter, 555 U.S. at 20).
Applying the Winter factors to the present matter, the Court finds that CAPA has not shown it is likely to succeed on the merits or that it is likely to suffer irreparable harm. Giventhat these conclusions warrant denial of Plaintiff's motion, the Court need not and will not also address the balance of the equities and public interest factors.
CAPA's Complaint contains four separate counts each of which CAPA argues is likely to succeed on the merits. Mot. at 17-18.
Under Count 1, CAPA claims that the 2015 Rule's "inclusion of non-resource pawn loans within the scope of the MLA is arbitrary, capricious and an abuse of discretion not in accordance with law." Compl. at 19.
Preliminarily the Court finds that CAPA may challenge the 2015 Rule based on the inclusion of pawn transactions because other pawnbrokers groups raised the issue during the notice-and-comment rulemaking process. See Natural Resources Defense Council, Inc. v. U.S. EPA, 824 F.2d 1146, 1151 (D.C. Cir. 1987) (); 2015 Rule, 80 Fed. Reg. 43560, 43562.
As for judicial review of agency action, federal courts first ask whether Congress has directly spoken to the precise question at issue. Providence Yakima Med. Ctr. v. Sebelius, 611 F.3d 1181, 1189 (9th Cir. 2010) (quoting Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984)). "[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of thestatute." Chevron, 467 U.S. at 843. Id. at 843-44. The Ninth Circuit has further explained:
An arbitrary and capricious challenge requires us to adhere to a narrow scope of review, wherein we are not to substitute our judgment for that of the agency. The agency, however, is required to examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choices made and we in turn must review that explanation, considering whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. A rule is arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
Providence Yakima Med. Ctr., 611 F.3d at 1190 (internal citations and quotation marks omitted).
Congress delegated the authority to promulgate regulations to effectuate the Military Lending Act to the Department of Defense. See 2015 Rule, 80 Fed. Reg. 43560, 43567. This authority includes the authority to define "consumer credit" and therefore the MLA's application to different lenders. See 10 U.S.C. § 987(i)(6).
CAPA argues that the inclusion of nonrecourse pawn loans within the scope of the MLA is arbitrary and capricious. CAPA points out that the 2015 Rule "includes nonrecourse pawntransactions within the scope of the MLA even though payment is not 'deferred.'" Mot. at 9 (citing 32 C.F.R. § 232.3(f)(1)). The same 2015 Rule defines "credit" as "the right granted to a consumer by a creditor to defer payment of debt or to incur debt and defer its payment." Id. (citing 32 C.F.R. § 232.3(h)). CAPA claims that redemption and payment of a pawn loan is optional and there is no cognizable "debt" assignable to the pledger. Id. It further argues that the 2015 Rule does not provide "any logical reasoning articulating how pawn transactions are 'predatory'" or "why pawn transactions are now included under the definition of 'consumer credit.'" Id. CAPA argues that the Department failed to review relevant data and provide any explanation for the application of the 2015 Rule to pawn transactions. Id. Further, CAPA points out that Congress passed the MLA in response to a Department report on predatory lending practices...
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