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State ban on payday loan rollovers called safe from new federal rules

By TED CARTER

Mississippi’s ban on payday loan rollovers will stay intact after the U.S. Consumer Financial Protection Bureau enacts a host of new rules on payday lending, the general counsel for the Mississippi Department of Banking and Consumer Finance says.

“Our current Check Cashing Act prohibits rollovers and unless those statutes are changed by the Legislature in a future session, the prohibition will remain,” said Banking Department General Counsel Stephen Shelver in an email, referring to the state’s ban on allowing the taking out of a new payday loan to pay off a previous one.

The prohibition on rollovers is seen as the lynchpin of Mississippi’s payday loan law.

Sam Gilford, spokesman for the Consumer Financial Protection Bureau, said the agency intends its new rules to serve “as a floor and not a ceiling.” That policy is borne out by wording in the proposed rules that specifies the new consumer “protections would be in addition to existing requirements under state or tribal law.”

Any legislation to eliminate the rollover prohibition would meet with opposition from House Banking Committee Chairman Hank Zuber III. He said in an interview Tuesday 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 and steered to passage in the last session, SB 2409, gives 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 percent monthly.

Borrowers of the maximum $2,500 get 12 months to repay, according to the law touted by backers as a way to keep short-term, low-dollar loans viable if and when the Consumer Financial Protection Bureau bans the use of car title as loan collateral.

“I am not for the rollovers,” Parks said. “That’s why we created this bill.”

But did the Consumer Financial Protection Bureau open the door for states and their lawmakers to replace rollover bans with a rule proposed by the federal watchdog agency to allow qualified payday loan borrowers to renew the same loan at least three times?

The Washington, D.C.-based Center for Responsible Lending thinks so. The non-profit 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 Bureau 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 of what represents the first-ever effort by the federal government to regulate the small loan market.

The final CFPB proposals released last week increased the number of allowed renewals from two to three in a 12-month period. The renewals could occur only if the borrower showed a “material” improvement in his financial positions.

The Center acknowledged the CFPB rules clearly could not pre-empt more stringent state rules, but it said the Bureau’s rule 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 Center 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.

“We want people to get loans that are going to help them,” Gilford said in an interview last week.

In Mississippi, attorney Charles Lee  of the Mississippi Center for Justice still thinks the CFPB’s allowance for loan renewals could ultimately doom the state’s ban on rollover loans. Lee, who is the Center’s consumer protection director, said he expects the position of the Banking Department’s Shelver “will change” if the renewals make it into the final rule.

Shelver, on the other hand, said a closer read of the rule proposals shows the loan renewals would be put in place only in states that allow unlimited loan rollovers.

States like Mississippi that have stricter standards can keep them, he said.

“I think of this in the same way as the EPA (Environmental Protection Agency) sets a minimum threshold that all states must follow; however, that does not prevent a state from enacting its own laws that set the threshold even higher.”

The comment period for the final rules extends to Sept. 14. At some point after that, the CFPB will issue its final rules. Then begins a 15-month implementation period. “So, at a minimum, the new rules will not take full effect until January 2018,” Shelver said.

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