If you're in need of cash — fast — make sure a payday loan really is your last resort. Cash-strapped consumers may have more options than they realize.
The Consumer Financial Protection Bureau is proposing new rules to curtail payday lending practices the agency says can lead borrowers into long-term "debt traps."
The protections would cover products including payday and other short-term loans, auto-title loans and some high-cost installment loans. Rates on such products, it says, can be as high as 390 percent — or more.
"Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt," CFPB Director Richard Cordray said in a prepared statement. "By putting in place mainstream, common-sense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail."
Among protections in the proposal, lenders would need to conduct an upfront "full-payment" test to determine if borrowers will be able to pay the loan without compromising other financial obligations and without needing to reborrow (a cycle that piles on fees and interest, making it harder to dig out).
Borrowers who don't meet those requirements would have access to alternatives including a principal payoff option on a small, short-term loan or less-risky longer-term loans.