‘Full payment test’ considered for payday loan providers

Regulators want lenders to prove that borrowers are able to repay the money they borrow

Maranda Brooks stands outside a payday loans business that she frequented in the past Thursday, Jan. 22, 2015, in Cleveland. Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together expansive, first-ever rules on payday loans aimed at helping cash-strapped borrowers from falling into a cycle of high-rate debt. Analysts often point to Ohio for its complicated history with payday loans: Ranking fourth in the nation in the share of people who took out payday loans, at 10 percent, Ohio also was third among states in the number of consumer complaints to the CFPB about payday loans, behind Texas and California. (AP Photo/Tony Dejak)
Maranda Brooks stands outside a payday loans business that she frequented in the past Thursday, Jan. 22, 2015, in Cleveland. Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together expansive, first-ever rules on payday loans aimed at helping cash-strapped borrowers from falling into a cycle of high-rate debt. Analysts often point to Ohio for its complicated history with payday loans: Ranking fourth in the nation in the share of people who took out payday loans, at 10 percent, Ohio also was third among states in the number of consumer complaints to the CFPB about payday loans, behind Texas and California. (AP Photo/Tony Dejak)

NEW YORK (AP) – Federal regulators are proposing a significant clampdown on payday lenders and other providers of high-interest loans, saying borrowers need to be protected from practices that wind up turning into “debt traps” for many.

The Consumer Financial Protection Bureau’s proposed regulations seek to tackle two common complaints about the industry.

The CFPB is proposing that lenders must conduct what’s known as a “full-payment test.” Because most payday loans are required to be paid in full when they come due, usually two weeks after the money is borrowed, the CFPB wants lenders to prove that borrowers are able to repay that money without having to renew the loan repeatedly.

Secondly, the CFPB would require additional warnings and restrict the number of times payday lenders can attempt to debit a borrower’s bank account.

(Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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