U.S. proposing rules to rein in payday lending industry

On Thursday, the Consumer Financial Protection Bureau is unveiling proposed new rules that would extend federal oversight to the payday loan industry. The CFPB and the payday lending industry agree that the new rules, if enacted, would radically transform the $38.5 billion high-interest, low-dollar loan market. The payday industry argues the rules would gut the industry, cutting off access to credit for low-income borrowers; the CFPB and consumer advocacy groups say the new rules are necessary to rein in practices that gouge customer with effective annual interest rates of 390 percent or more and encourage spiraling cycles of ruinous debt. Some consumer advocates say the rules don't go far enough.

"The very economics of the payday lending business model depend on a substantial percentage of borrowers being unable to repay the loan and borrowing again and again at high interest rates," said CFPB director Richard Cordray. "It is much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey." The proposed rules will likely face pushback and legal challenges from the industry and from Republicans, including presumptive presidential nominee Donald Trump, who has vowed to scrap the agency and most of Dodd-Frank.

The payday lending rules would largely address two frequent criticisms of the industry, including making lenders do a "full-payment test" to ensure that borrowers can repay the loans, and tackle a lender's ability to take payments from a borrower's bank account, reducing the sometimes sizable overdraft fees such activity commonly leaves borrowers having to pay. The rules would also bar auto titles from being used as collateral. Public comment will be accepted on the rules until Sept. 14, and they could take effect as soon as next year.

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