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Banking Department assures CFPB won’t preempt ban on payday loan rollovers


Mississippi’s ban on payday loan rollovers will stay 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 Thursday, referring to the state’s ban on allowing the taking out of a new payday loan to pay off a previous one.

Charles Lee, a lawyer and consumer protection director for the Mississippi Center for Justice, is not so sure.

» READ MORE: Federal regulators propose restrictions on payday lenders

The Consumer Financial Protection Bureau, or CFPB, released its final rules proposal Thursday for the nation’s short-term, low-dollar loan providers. A core element of the proposed rules is an “ability-to-repay” standard. While the rules make the payday lender responsible in most instances for ensuring the borrower can afford to repay a payday loan, the rules allow a series of exceptions.

Likewise, the proposed rules forbid renewals of unpaid loans but include exceptions, chiefly a provision that allows a borrower to renew a loan three times, provided the borrower can show a “material” improvement in his income. The exception also mandates that with each renewal, a percentage of the loan principal must be paid down.

This provision leads Lee to think the federal regulations will preempt the state’s rollover ban, the lynchpin of Mississippi’s payday loan law.

Addressing assurances Shelver that the ban will stay, Lee said: “I believe his position will change” if the final rule allows loan renewals if the borrower’s financial situation during the term of the new loan materially improves “relative to what it was since the prior loan was made.”

This would allow up to three loan renewals, Lee said.

Lee is correct about the loan renewals but the provision actually strengthens protection of the borrower, said Lisa Stifler, the Center for Responsible Lending’s deputy director of state policy.

The renewal rule is intended to lift a borrower out of a debt trap by preventing him from returning to a payday lender for a new loan to meet household expenses left unmet by paying off the previous loan. That’s why the new rule forbids a new loan within the 30-day period, Stifler said, and added the renewal would require the borrower to show his financial situation had improved since the last loan.

“The ban is still going to be around,” Stifler said.

Mississippi’s supporters of the rollover prohibition swhpuld be further encouraged by a statement in the CFPB rules that “these protections would be in addition to existing requirements under state or tribal law.”

She said her fair lending advocacy organization had wanted a 60-day period between loan renewals. “That’s one thing we are a little concerned about,” Stilfer said of the 30-day cut to the waiting period.

Shelver said he was still reading through the 1,334 pages of the final rule proposals from the CFPB Thursday. “It will take some time to analyze all this and try to figure out from a practical standpoint how this will impact Mississippi’s existing products,” he said.

The comment 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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