I usually steer clear of short-selling blogs. However, the somewhat notorious Citron Research recently published a serious criticism of World Acceptance Corp. (Nasdaq: WRLD). The gist of the article is that the new Consumer Financial Protection Bureau could realistically put World Acceptance out of business via onerous regulation.

World Acceptance is a consumer installment lender. It offers installment loans between $300 and $4,000 through 990 offices in 12 states and Mexico. Its clientele consists of individuals with limited access to consumer credit. On average, clients borrow $1,067 over a term of 11 months. The APRs range from the low teens up to 204%.

I think of World Acceptance as a cousin of payday lenders. The difference between it and companies like Advance America (NYSE: AEA), Cash America International (NYSE: CSH), Dollar Financial Group (Nasdaq: DLLR), EZCorp (Nasdaq: EZPW), and First Cash Financial Services (Nasdaq: FCFS) is that payday lenders loan money for two weeks (until the client's next paycheck), and they charge a flat fee of $15 to $20 per hundred borrowed.

The dreaded CFPB
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a bureau housed inside the Federal Reserve, the CFPB has been created to protect consumers from things they could protect themselves from by using common sense. President Barack Obama named Elizabeth Warren a "special advisor to the president," and she will be getting the bureau up and running.

Citron's argument is based on language in the Dodd-Frank act that appears to allow broad powers to whomever runs the agency, and how these rules are applied remains to be seen. That has to make companies like World Acceptance mighty nervous, and with good reason. Investors should be worried, too. This whole situation creates uncertainty, and markets and stocks get held down under the Evil Cloud of Uncertainty.

The exhaustive list of the CFPB's power can be interpreted to mean different things depending on who interprets it. The way I interpret it, the CFPB can do just about anything it wants. This includes setting up all kinds of unpalatable requirements for a company like World Acceptance. While Ms. Warren is not the official director of the CFPB, it isn't a huge leap to suggest that the architect of the bureau could very well get nominated and confirmed as its chief. Worse, she has stated disdain for non-banks. World could be in a heap of trouble. If she or any other director wants it dead, it's dead.

Here's one example: The CFPB can call World's business abusive if it "takes unreasonable advantage of (a) the lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (b) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service."

It can call World's business "unfair" if "the practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and ... is not outweighed by countervailing benefits to consumers."

Imagine the most restrictive interpretation of these phrases. Now imagine it knowing that "in fiscal 2010, 76.4% of the Company's loan originations were refinancing of existing loans ... in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer ... thereby increasing the amount borrowed and increasing the fees and other income realized."

Do you think this is a business practice the CFPB is going to love?

Case by case
The worst-case scenario is that the CFPB so gums up the small-dollar-loan works that World Acceptance is put out of business. It collects back the money it has out in loans and folds up shop. The company has $590 million in receivables, and historically experiences a 15%-17% default rate. Taking 16% as average the past three years, the company would collect back $496 million. It would pay back the $242 million in long-term debt it owes. That nets it out with $254 million in cash against 16 million shares, or a stock price of about $16. That's a real, cold-hard cash book value that I think is the floor for the stock. It's not bankruptcy, but it's also not the current $43 share price.

The best case is that the CFPB leaves the company alone. With analysts projecting earnings of $5.57 and $6.08 this fiscal year and next, respectively, that gives World a P/E ratio of 8 on earnings growth of 29% this fiscal year and 9% in the next. That makes it undervalued.

The takeaway, however, is that the aforementioned Evil Cloud of Uncertainty makes World a big sell in my book. Why on earth hold a stock when government regulation could destroy it? If you've seen what's happened to for-profit education stocks like DeVry (NYSE: DV), then you know if you play with government fire, you get more than smoked.

There is simply no reason to risk your hard-earned capital with this threat looming. Unless you like roasting your dollar bills like marshmallows over a roaring fire.

Matthew Brown does not own shares of any company mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.