WASHINGTON—Revenues for the $6-billion payday loan industry will shrivel under the CFPB’s new payday lending rule, according to analysts who are predicting that much of the small-dollar loan business will move to small banks and credit unions.
The Consumer Financial Protection Bureau last week released a final version of its rule around short-term, small-dollar loans, which includes a cap of 36% on such loans, far below what many payday lenders charge.
The CFPB’s new rule still must survive two major challenges before becoming effective in 2019. Republican lawmakers, who often say CFPB regulations are too onerous, want to nullify it in Congress, and the payday loan industry has already threatened lawsuits, Reuters reported.
Under the new rule, the payday lending industry’s revenue will plummet by two-thirds, the CFPB estimated.
The rule will devastate an industry serving nearly 30 million customers annually, said Ed D‘Alessio, executive director of the Financial Service Centers of America, an industry trade group. “Taking away their access to this line of credit means many more Americans will be left with no choice but to turn to the unregulated loan industry, overseas and elsewhere, while others will simply bounce checks and suffer under the burden of greater debt,” he told Reuters.