Payday lenders balk at proposed rules (Journal Record)

By Brian Brus

Proposed rules would affect payday lending businesses, like Advance America at 1841 Belle Isle Blvd. in Oklahoma City.  (Photo by Brent Fuchs)

Proposed rules would affect payday lending businesses, like Advance America at 1841 Belle Isle Blvd. in Oklahoma City. (Photo by Brent Fuchs)

OKLAHOMA CITY – The Consumer Financial Protection Bureau’s proposed new rules on what the agency refers to as payday debt traps could force people who need short-term loans to seek out painful alternatives.

Advance America Senior Vice President Jamie Fulmer said the new rules would reduce access to credit for millions of American consumers who need small, short-term loans.

“If you regulate an industry out of business, all you do is take away choices from consumers and drive them to potentially higher-cost options … and less-regulated, if not illegal, options,” Fulmer said. “The bureau has put blinders on, thinking they can solve this problem and no other problems will exist.”

DeVon Douglass, an analyst for the Oklahoma Policy Institute think tank, said Fulmer’s concerns are exaggerated.

“When payday loans and high-cost installment loans don’t exist in a state anymore, people turn to other resources such as family members and churches and credit unions, or they learn to budget differently,” she said, referring to a Pew Charitable Trusts study. “It’s not this false dichotomy that the industry and their lobbyists have created, that without payday loans they’ll go to loan sharks and die. That hyperbolic rhetoric is just not true.”

Douglass is poring over 1,300 pages of new rules intended to end cyclical payday borrowing that offers short-term, small loans to people who typically have a difficult time getting credit elsewhere – government data shows borrowers have a median income of $22,500. When payday loans come due, many of those people are unable to pay off more than the interest, so they carry the debt forward and even roll it into new loans, incrementally driving up the effective annual interest rate. An initial finance charge may range from $10 to $30 for every $100 borrowed, so a two-week loan with a $15 fee per $100 can quickly hit an annual percentage rate of almost 400 percent.

The rules, if put into effect by the watchdog agency as early as 2017, would require that lenders verify borrowers’ income and confirm repayment ability, as well as limit the number of times loans could be carried over. The CFPB projects that the proposed rules could shrink payday lending volume by as much as 60 percent.

Fulmer said it has the potential to decimate an entire industry.

“Do you get shot in the head or shot in the stomach?” he said. “They’re going to take away your revenue and also make it more costly to offer your products.”

The Oklahoma Department of Consumer Credit is waiting for more development on the issue. Board members expressed concern Wednesday that the regulations might require new state statutes echoing the federal position, although they did not discuss specific details. And department Deputy Administrator Ruben Tornini said it’s too early to project effects.

The Department of Consumer Credit reported the state has 257 licensed deferred deposit lenders, the business category most people would think of as payday lenders. Advance America is one of the largest operators with 69 offices in Oklahoma employing about 170 people.

Payday lending is unevenly regulated by states; 38 have specific statutes that allow the practice, according to the National Conference of State Legislatures. Douglass said she is encouraged that Oklahoma will join those who have effectively halted the practice by establishing a 36-percent APR cap.

That hope is due largely to public response to a bill introduced earlier this year by state Sen. David Holt, R-Oklahoma City. Senate Bill 1314 would have allowed payday lenders to offer loans of up to $3,000 instead of the current $500 limit. A coalition of religious groups pushed back and Holt withdrew the bill.

“I think that clearly shows that people aren’t willing to let companies profit on the backs of the poor,” Douglass said.

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