If opponents of the payday loan industry had their way the business model would be eviscerated entirely. But the Consumer Financial Protection Bureau (CFPB)’s new rules, which could go into effect as early as next year, could help the industry’s critics achieve their ultimate goal: annihilation.
Mississippi’s payday lending and auto-title lending industry could experience a transformation in a couple of years. This is when the consumer federal watchdog agency will start to fully clamp down on the these companies partaking in this business model.
As of 2018, jurisdictions across the United States could begin to witness a decline in the number of lenders. In fact, according to independent studies, the number of lenders would drop by as much as 65 percent. The CFPB has admitted that its proposal could see 70 percent of payday loan businesses go out of business.
The state of Mississippi could be impacted the most if the new regulations are adopted at the federal level. The Magnolia State has the highest concentration of payday lenders in the nation with more than 1,100 stores in operation, which means many stores could shut their doors.
One of the biggest questions that state officials have is: will new federal rules affect current statewide laws that are in the books? The CFPB says that in Mississippi’s case – officials had prohibited payday loan rollovers a couple of years ago – it would remain intact.
Many state officials since last week, including Arkansas Attorney General Leslie Rutledge, have complained that the federal watchdog agency didn’t consult with them. However, one CFPB official states that the proposal should serve and be viewed “as a floor and not a ceiling,” adding that “protections would be in addition to existing requirements under state or tribal law.”
Besides, even if the CFPB’s rules affected Mississippi’s consumer protection laws, it would receive immense pushback from local politicians, anti-poverty activist and community organizations. The CFPB, officials say, has no intention of eliminating local laws.
“The proposed small dollar loan rules released by the Consumer Financial Protection Bureau (CFPB) will bring much-needed relief to consumers,” said Bynum, vice chairman of the CFPB’s Consumer Advisory Board, in a statement.
“By making sure borrowers will only be placed in loans that they can afford to repay, and not subjected to predatory cycles of debt and collections, the CFPB strikes a balance of eliminating some of the most abusive financing practices currently in use, while creating an environment where responsible credit remains available.”
In the Hospitality State and states nationwide, the Center for Responsible Lending (CRL) discovered that online payday lenders earn $4.1 billion annual fees from borrowers. The CRL notes that the average short-term, high-interest $350 loan elicits $458 in fees.
Ultimately, the CFPB describes itself similar to the Environmental Protection Agency (EPA). It establishes a minimum threshold that all states have to follow, and then it is up to the states to develop their own rules and regulations that they think are in the best interest of citizens.