1. Small Business Payday Lending Roundtable   Wednesday, September 14, 2016 1:00-3:00 PM
Presented by Jennifer Smith
Assistant Chief Counsel for Economic Regulation & Banking
Office of Advocacy
US Small Business Administration

2. Welcome & Introductions
The Office of Advocacy is an independent office within the Small Business Administration (SBA). As such, the views expressed today do not necessarily reflect the views of SBA or the Administration.

3. Most Important Issues for Attendees
Impact of rule on small business Potential unemployment of small payday lender employees Customer access to credit Doesn’t feel like CFPB has heard the concerns of small business prefers proposal closer to state regulations Concerned about customer need Rights of small guy to have the opportunity to make decisions for him/herself

4. Most Important Issues for Attendees
Concern for customers that need them/access to credit
Being out of business
Rule ends existing product and creates something new
Ability to repay requirement
Concerned about employees, customers and communities & right to borrow
Long term functioning state laws don’t appear to be considered

5. Concerns cont.. Exemptions can be modified for access to credit
Business will close down
Financial effects of the regulations
Increase cost and put people out of business
Small business access to credit
3 loan sequence and 30 day period
Independence in the states and being able to service small loans; don’t have the margin to handle the all in requirements of the proposed rule

6. Concerns cont. Where will customers go when payday is the last resort
Federal overreach
States well regulate
Market should determine if customer wants loan
Margins aren’t there for them to exist with proposed rule
Rule ignores tribal sovereignty; tribes regulate their products violates Dodd Frank

7. Concerns cont. Access to credit for consumers
Other products will be subjected
Loss of employment also means loss of health insurance for health care
Kentucky credit unions are insured and covered by the PAL program rule would have an effect an Pal program will need to be rewritten NCUA
Line between consumer loans and small business loans may be ambiguous and blurry
May impact small business credit if the businesses are no longer there.

8. The RFA and SBREFA Panels
The RFA requires agencies to consider the economic impact of actions on small entities when promulgating regulations.
If a rule will have a significant economic impact on a substantial number of small entities, an agency must prepare a regulatory flexibility analysis . If not, the agency may certify the rule.
The SBREFA panel process only applies to rules that will have a significant economic impact on a substantial number of small entities.

9. What is the SBREFA Panel Process?
Requires EPA, OSHA and now the CFPB to conduct special outreach efforts to ensure that small entity views are carefully considered prior to the issuance of a proposed rule
Panel consists of a representative or representatives from the rulemaking agency, the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) and the Chief Counsel for the Office of Advocacy.
Panel solicits information and advice from small entity representatives (SERs)
Panel convenes and completes its report within 60 days
Panel report, including recommendations, is completed prior to publication of a proposed rule and becomes part of the official docket for the proposed rule

10. Payday Lending Panel
I. Overall panel recommendations II. Panel recommendation on rural areas

11. Impact of the Proposed Rule on Small Entities
Short Term Loans-Consumer is required to repay the entire amount within 45 days
Cap on interest rates
affordability of changing infrastructure
Underwriting cost will increase by 20% not be able to operate

12. Impact of the Proposed Rule on Small Entities
Ability to Repay
Ohio law changed models lost 40% of revenue
80 -90% of revenue will be taken away with additional costs
Average customer makes less than 40,000 /year if you take everything in consideration, they won’t qualify they’ll lose 70% of customers can’t limit the
Majority of customers don’t want to go to bank and banks won’t do small loans

13. Impact of the Proposed Rule on Small Entities
Customers like not having to reveal life history many don’t have bank accounts
Don’t have a problem with
Credit check isn’t necessary because they already know that customer won’t pass
Do other type of underwriting to determine the ability to repay
Businesses are in community and they know their customers
Some state laws won’t allow them to raise their rates
Recordkeeping Requirements

14. Impact of the Proposed Rule on Small Entities
In Washington state small businesses went out of business with the tracking and national database programming is expensive smalls don’t have an IT department to do it
Payback issue and limit on loans problematic because customers don’t have money
Prohibition on Loan Sequences

15. Impact of the Proposed Rule on Small Entities
30 Day Cooling off Period
Punishes people for borrowing money
Exception for people with emergency smalls think it’s a good idea but why should customer have to explain
But exceptions add more burdensome because it makes it too complicated

16. Impact Cont. 30 day cooling off
How does the payday lender pay its bills if no customers
Has a cumulative effect
Customer pays off and then they can’t borrow the funds for 30 days
Consumer may be fearful to pay it off if they can’t borrow & therefore default
Very upsetting to customers to have a cooling off period and limiting the number of loans
End result is still the same the cooling off period will cause a problem

17. Impact of the Proposed Rule on Small Entities
Any prevention of a loan due to the cooling off period could be catastrophic
TN has one of oldest payday lending statute. 4M transactions with less than 30 complaints per year
Less than 15 complaints for storefronts in KY 2M loans /year
Longer Term Loans-

18. Impact of the Proposed Rule on Small Entities
Change in circumstance doesn’t happen very often
Ability to Repay
Documenting rent could be very difficult even if they could get the lease
Verifying income will be difficult additional required would be very difficult the amount of time to verify will give an advantage to other lenders
Many small lenders don’t have the technology

19. Impact of the Proposed Rule on Small Entities
How to address shared income and shared obligations for people who share rent. Very murky right now
No alternative compliance-online lending uses 21st century CFPB is based on 20th century model. Should be alternative t
Proposal will require them to increase manpower and expenses while decreasing revenue
Recordkeeping Requirements

20. Alternatives Group 1 Allow for different models
Pertain to states with little or no laws
Limit the number of ris
Eliminate or further reduce cooling off
Reduce number of years for records
Detail may not be necessary for small business
Group 2

21. Alternatives Group 2 TN & other states have a flexible credit product
Allows consumer and company to select the product
It’s without a database
Group 3
No cooling off period re creates less volume from smalls
Consider exempting smalls from the rules

22. Alternatives Let smalls make their own ATR requirements Group 4
Scrap current proposal and develop mandatory disclosures
Would be less costly
Add meaningful disclosure and mandatory payment plan study to see how to make it better
Scrap the cool off allow emergency access with a paydaown

23. Alternatives
CFPB has a default rate of 5% if it’s a little higher it may reduce the verifications and cost
Group 5
Too onerous needs to go back to the drawing board
Safe harbor for those that are already operating under state law
Cool off period ought to be eliminated if has to be one than it should be something like 72 hours

24. Alternatives Streamlining the process with the ability to repay
Needs to be simple for consumer and lender to retain simplicity and transparency

25. Advocacy Contact for CFPB & Financial Issues
Jennifer A. Smith
Assistant Chief Counsel
for Economic Regulation & Banking
Office of Advocacy
United States Small Business Administration
409 Third Street, SW
Washington, DC 20416
Ph: (202)

26. Thank you!