A recent report from the Consumer Financial Protection Bureau (CFPB) might signal regulatory changes on the way for the payday loan industry, according to Bruce Roberts, research analyst with Fintrust Investment Advisors.
South Carolina is among the few states where the payday loan industry significantly impacts the economy, mainly in the form of installment loans.
The report focuses on the frequency of renewal loans, finding that more than 80 percent of payday loans are rolled over or followed by another loan within two weeks. About 15 percent of new loans are followed by at least 10 more loans. The consecutive loans often keep payments from applying to principal.
“Given what they did on the payday loan, they did a really in-depth analysis, and it looks like they’ll be doing much the same with the installment loans,” Roberts said. “They’re putting out these studies right now to gear everybody up for regulation. They’re trying to make their case now so when they come out with rules everybody will understand why.”
The report came on the heels of a recently initiated federal probe of Greenville-based World Acceptance Corp., another indication that the industry intends to target payday lenders. It is the first in an occasional series of publications from CFPB, the agency said in the report.
Roberts said World Acceptance was likely targeted because of its more frequent tendency to add services that drive up loan costs.
“My guess is they won’t have to stop them, but [CFPB] may force disclosures at point of sale,” Roberts said. He said the industry could possibly expect to see new regulations for payday loans over the next 12 to 18 months, perhaps restricting the number of consecutive loans or interest rates on those loans.
Such restrictions would target the most profitable businesses of installment lenders such as World Acceptance, which could respond by increasing marketing efforts, expanding into new territories or lowering their APR rates, or some combination.
“Analysts have been writing about World for the last five years, saying they’re going to go bankrupt next year,” Roberts said. He said the current probe could have a positive effect for the company by shedding light on what’s really happening, with greater transparency possibly even helping to reduce the stigma associated with the industry.
