Mississippi officials report that the state's ban on payday loan rollovers will remain intact after the Consumer Financial Protection Bureau enacts new rules on payday lending.
The Mississippi Department of Banking and Consumer Finance’s general counsel, Stephen Shelver, said the state’s current Check Cashing Act bans rollovers (taking out a new payday loan to pay off a previous one) and, unless those statutes are changed by lawmakers in a future session, the prohibition will remain.
Any legislation to eliminate the rollover prohibition would be opposed by Mississippi House Banking Committee Chairman Hank Zuber III, who said this week he sees no reason to lift the ban, noting it helps borrowers avoid a cycle of debt.
His Senate counterpart, Business and Financial Services Committee Chairwoman Rita Potts Park, said a bill she authored, SB 2409, provides borrowers and lenders an alternative to rollovers by allowing installment loans of up to $2,500. Each monthly installment requires payment of a percentage of both the principal and interest, which can be up to 25% monthly.
The Center for Responsible Lending (CRL) believes the CFPB opened the door for states and their lawmakers to replace rollover bans with a rule it proposed to allow qualified payday loan borrowers to renew the same loan at least three times. The organization also worries that the CFPB's proposed rules are too generous to payday lenders by allowing a handful of exemptions to the ability-to-repay standard.
"By sanctioning two rollovers, which are evidence of inability to repay, and exempting six very high-cost loans annually from an ATR (ability-to-repay) requirement, the [CFPB] would undermine the basic principle of requiring universal ATR and existing state laws in about a third of states that do not permit such loans at all," the Center for Responsible Lending said in an analysis released in March 2015 shortly after the CFPB issued its initial draft for regulating the payday and small loan markets.
The final CFPB proposals released last week raised the number of allowed renewals from two to three in a 12-month period. The renewals could occur only if borrowers showed a "material" improvement in their financial positions.
The CRL acknowledged the CFPB rules could not pre-empt more stringent state rules, but also said the rules will be seen as a federally approved guideline and will likely set the tone for debates around payday lending in the states.
"It should not send the message that any loan made without a determination of the borrower’s ability to repay is acceptable," the CRL said.
Gilford, the CFPB spokesman, said the agency understands the concerns raised by the series of exceptions the proposed rules allow, as well as the loan renewals. The exceptions and renewals stem from recognition that people need access to emergency credit, he said.