In June 2016, the Consumer Financial Protection Bureau (CFPB) proposed a new federal rule to regulate short-term lending – a rule that, by the CFPB’s own estimate, will eliminate 69-84 percent of loan volume among storefront lenders. This drastic reduction will not only force thousands of small businesses to shutter, but also severely restrict the availability of credit for millions of Americans – including many residents of Virginia.
As the manager of Payne’s Check Cashing, I have seen firsthand the very real need for short-term credit in Virginia and the negative effects that onerous regulations can have on businesses and communities. For more than 15 years, our family-owned business has been serving the Culpeper and Charlottesville areas. We are a small business by every measure – four stores and 13 employees – and overly restrictive regulations have a tremendous impact on our ability to operate our business and serve our customers.
When the Virginia state legislature passed a complicated set of restrictions for short-term lending in 2009, our small business took a severe hit and was forced to give up a planned expansion. We even had to lay off employees and close two stores, which were located in rural areas underserved by traditional banks. No other lending businesses have since relocated to those areas, and an untold number of families have been left without a reliable source of short-term credit.
The CFPB’s new proposed rule will result in more of the same – it will hurt our business, our employees, our customers, and the communities we serve. That is why I hosted representatives from the Small Business Administration (SBA) at one of our stores last week to discuss how the CFPB’s proposed rule will impact our operations, and many other small businesses like us.
Most small businesses under the CFPB’s proposal will be unable to meet federal requirements as they are expensive and complex for those with small operating budgets and limited personnel to comply with. What’s worse, the CFPB recognizes this fact and, yet, has chosen to move forward with its proposal without considering special exemptions for small businesses.
The costs for our business to comply with the CFPB’s rule requirements will be significant. Based on our understanding of the rule, there are two areas that are especially costly: software compliance and personnel training.
After Virginia’s law passed in 2009, we were forced to go through five separate software companies over the course of four years before finding one that complied with state regulations. With the proposed CFPB regulations, we expect new software conversion costs to be more taxing on our operations. In addition, we have projected that training one newly hired employee will be at least a 108% increase over current costs based on the CFPB’s earlier rule concepts. Aside from these specific examples, added expenses and lost business revenue resulting from the CFPB’s mandates are unknown at this time and are likely to be crushing. We will have no choice but to scale back operations, lay off employees again or, more likely, close down our stores altogether.
Most importantly, our customers and millions more across the country, will lose their access to credit. Many households rely on short-term credit to manage a budgetary shortfall or deal with unexpected expenses. Without access to these products, consumers face unenviable – and expensive – choices such as missing a payment, overdrafting a checking account, or worse, turning to unscrupulous or less reputable lenders to get the money they need.
When it drafted its proposed rule, the CFPB listened to special interest groups and its allies in Washington instead of listening to the concerns of customers who overwhelmingly value the product of small businesses like ours. In doing so, the Bureau has jeopardized our business, our employees’ jobs, and our customers’ credit choices. As the public comment period comes to a close next month, I hope the CFPB will give more weight to what customers and businesses are saying and reconsider its misguided regulatory approach that will only work to destroy small businesses, damage state and local economies, and deprive millions of Americans of the short-term credit they need.
Brandon Payne is the manager of Payne’s Check Cashing, which serves customers in Culpeper, Madison, and Charlottesville, Va. Payne’s Check Cashing offers a variety of nonbank financial services, including payday loans, title loans, check cashing, money orders, and bill payment services.
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