In this time of partisan gridlock, it's rare to see a federal policy move than can be of real help to small businesses and their customers. The rule recently released by the Consumer Financial Protection Bureau (CFPB) aimed at curbing predatory payday lending has the potential, if strengthened, to substantially transform the climate in which small business owners operate.
While small business owners are not the primary recipients of payday loans, the prevalence of these lenders and the interest rates and fees they impose on their customer base cause a real drag on their bottom line. Payday loans siphon money out of local communities and depress consumer spending. In Florida, for example, consumer spending was reduced by more than $680 million, and each year, payday and car title loans drain $8 billion in fees from American consumers.
The success and well-being of a small business are inextricably tied to the success and welfare of its community. When consumers turn to payday lenders in their time of need, only to face the resulting financial turmoil, small businesses realize the impact on their revenue sheets.
Main Street business owners rely on a healthy, and vibrant customer base to drive sales-investing a considerable portion of proceeds back into the communities that support them. To them, the idea that someone's business model is predicated on extracting wealth from their local economy is entirely foreign. Small businesses drive local economic growth and outpace their larger competitors in terms of job creation. In June alone, over 55% of new jobs added to the U.S. economy were created by small businesses.
Payday lenders aren't creating jobs with their predatory lending practices, and they aren't driving economic growth, they are standing in the way. Small business owners, their employees, and their customers would fare better with sound protections from payday lenders. A recent study from the Center for Responsible Lending found that in states that effectively regulate payday lending, consumers that would have spent $2.2 billion on payday loan fees and interest payments instead spend that money on the goods and services offered at local businesses.
Though prohibited in 14 states, payday loan storefronts still outnumber Starbucks and McDonald's franchises. They aren't providing a jolt of caffeine to get through the day or a quick meal when time is of the essence; they are extracting wealth out of the community with little to no concern for the financial ruin they leave behind. As small business owners and concerned citizens, we must demonstrate support for strong rules that regulate payday lending.
On June 2nd, the CFPB, the federal agency charged with protecting America's consumers, proposed a rule aiming to protect communities from the worst abuses of payday lending. This rule is a critical first step in stopping the harms of unprincipled loans, but more work needs to be done. The rule, as it stands, contains several loopholes that need to be fixed, and industry lobbyists are mounting a full-fledged attack to weaken it further. It's up to us to stand up in the best interest of our businesses, our employees and our customers. For the next two months, you can join the effort to take on predatory payday lending practices by submitting comments to the CFPB and urging them to strengthen their rule, close the loopholes, and rein in payday lending.