New Federal Payday Lending Regulations Could Cause Massive Problems for Many States

It is no big secret that the Consumer Financial Protection Bureau is planning on implementing new rules that could dramatically change the payday lending industry. Some opponents of the new federal regulations being proposed have even said on record that these rules could very well destroy the industry entirely. Of course, since the mainstream media does nothing but fluff pieces about the cons of payday lending, and no big stories on the positive aspects of this industry, there are some that are chomping at the bit to see payday lenders get smacked down by the federal government’s watchdog group – the CFPB. But there’s more to the picture than meets the eye, and these new rules could spell financial disaster for some states.

Payday Lenders Provide a Service no one else can or doesPayday_loan_shop_window

Payday lending companies are not the old loan sharks from the movies who are seducing people to take out high interest loans. This may be the picture that some advocate groups would like you to believe, but it’s not true. There are payday lenders out there that perform hundreds of thousands of transactions each month. Some even have customers that drive over 50 miles or more to get loans to take care of unforeseen circumstances. In fact, a recent study showed that 95 percent of payday loans customers value the services they get from these lending companies. Many believe that without the payday loans that they take out, they would be left with no other options when they were in dire need of emergency cash. The potential for the CFPB’s new laws to decimate this industry have simply not addressed the millions of people who depend on these loans, often during the most difficult times of their lives.

New regulations on the payday lending industry would not just eliminate the loans the people depend on, but they could also stop consumers from getting access to money orders, check cashing and even wire transfer services. Many payday lending locations are the sole providers of these services in some areas. If these locations were to be forced out of business due to new CFPB regulations, tens of thousands of people could find that they no longer have reasonable access to some of the ancillary services that payday lending locations routinely offer.

An Example from Tennessee

There are broader, state-level economic issues to consider that are related to this issue as well. Take, for example, the State of Tennessee. A Nashville Area Chamber of Commerce crunched the numbers and found that the state could wind up losing over $3 billion if payday lenders are over regulated to the point of having to close up shop. Additionally, it is estimated that as many as 34,000 jobs would completely dry up in the state. That is a heck of a lot of revenue for any state to lose, and it would have rebounding negative effects that would likely last for generations.

Usurping the Power of State Government

The bottom line is that states already have payday lending rules and regulations in place. The federal government – by way of the CFPB – would be setting a dangerous precedent of nullifying the authority of individual states if the CFPB is allowed to cram in its new regulations and to impose them on every state in the nation. No matter what your political leanings are, you have to admit that it is extremely dangerous for an almost non-accountable government agency to swoop in and implement these kinds of changes; regardless of what industry they have set their sights on taking action against.