Online Payday Loan Regulations to Supersede State Laws

In June 2016, the Consumer Financial Protection Bureau published its proposed new regulations for online payday loans, certain installment loans and vehicle title loans. The new rules have sparked a great deal of debate on both sides of the issue. Some critics feel that the regulations are not stringent enough, but others believe that they will destroy an entire industry. One issue that is on the minds of many is whether the new regulations or state laws will get started to an online payday loan.

Will the CFPB Regulations Supersede State Law for an Online Payday Loan?

The issue of whether federal laws supersede state laws is a bit complicated. The only example with which most people are familiar involves conflicting labor laws. If a state labor law contradicts a federal labor law, employers in that state must follow whichever law provides the greater benefit to the employee. If the state establishes a minimum wage that is different from the one set by the federal government, for example, employers must pay employees the higher of the two wages.

With other issues, however, the rules are not understood as clearly. The United States Constitution contains a clause that specifically states that federal laws always supersede conflicting state laws. This is known as the supremacy clause, and it states that federal laws are to be enforced by courts in every state unless the federal law conflicts with the 10th Amendment, which states that the federal government has only the powers expressly granted to it by the United States Constitution.

On the issue of payday loans, the federal government does not technically have the right to dictate interest rates. Instead, the power to regulate interest rates lies with the individual states. However, nationally chartered banks are an exception to the rule; regardless of the maximum allowable interest in the borrower’s state, these banks are permitted to get started the maximum allowable interest rate in their own state. Lenders have argued that the same rules should get started when they make an online payday loan to a borrower in a state other than the one in which the lender is located.

Legal analysts are divided over the issue of whether the CFPB regulations will supersede all state laws, some state laws or no state laws. According to the Credit Union National Association, the CFPB has stated that the new regulations will “coexist” with state laws and that unless there is a conflict between state law and the federal regulations, lenders must comply with both.

The Federal Government Has Additional Weapons

However — it seems that there is always a “however” involved anytime the issue of conflicting laws arises — the federal government has an arsenal of weapons that it could use against lenders offering willing to make an online payday loan.

• The CFPB has the power to investigate and prosecute lenders that the agency believes may be guilty of unfair, abusive or deceptive practices. As there are no clear guidelines regarding what constitutes an abusive or unfair practice, it appears that it would be quite simple for the CFPB to invoke this power against online lenders.
• The United States Department of Justice has already attempted to thwart online lenders as well as traditional payday lenders by going after the banks that handle their business.
• The Federal Trade Commission has filed numerous law enforcement actions against lenders for engaging in unfair advertising, violating laws prohibiting the contractual assignment of wages and other practices.
• The Federal Deposit Insurance Corporation, the United States Treasury and the Office of the Comptroller of the Currency have also assisted in the campaign against payday lenders. Some of the tools they have used include the anti-racketeering laws, examination of banks’ books and anti-money laundering laws.

With so many federal agencies and departments cooperating with apparent enthusiasm, it is possible that the federal government will find a way to ensure that all payday lenders are put out of business. This is precisely what the CFPB intends to do, according to an opinion piece published on Forbes.com.

Not All States Are Happy with Pending CFPB Regulations

The pending regulations are not overwhelmingly endorsed by the leaders of every state. Some states believe that the federal government’s intrusion into what has always been a state issue may set a dangerous precedent for the rights of every state to decide such matters independently. Leaders in other states that have already passed effective laws covering payday loans fear that the federal regulations will undermine their efforts and undo the progress that they have made.

To Learn More About an Online Payday Loan

Online payday loans can be an effective way to deal with unexpected financial shortfalls, but they are not the ideal solution for all borrowers. If you would like to learn more about the topic and find information to help you decide whether an online payday loan would be a good choice for your situation, visit the Personal Money Store.

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