Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate. Payday loans — so called because they are typically used to tide people over until their next paychecks — often entangle borrowers in hard-to-escape spirals of ever-growing debt, according to the consumer bureau.
The new rules limit how often, and how much, customers can borrow. The restrictions, which have been under development for more than three years, are fiercely opposed by those in the industry, who say the rules will force many of the nation’s nearly 18,000 payday lenders out of business.
Until now, payday lending has been regulated by states, with 15 already having made the loans effectively illegal. In more than 30 other states, though, the short-term loan market is thriving. The United States now has more payday loan stores than McDonald’s outlets. They make around $46 billion a year in loans, collecting $7 billion in fees.
The payday-lending rules do not require congressional approval. Congress could overturn the rules using the Congressional Review Act, which gives lawmakers 60 legislative days to nullify new regulations, but political analysts think that Republicans will struggle to get the votes needed to strike down the regulations.
Under the new rules, lenders will be allowed to make a single loan of up to $500 with few restrictions, but only to borrowers with no other outstanding payday loans. For larger or more frequent loans, lenders will have to follow a complex set of underwriting rules intended to ensure that customers have the means to repay what they borrow.
The restrictions would radically alter the short-term lending market. The number of loans made would likely fall at least 55 percent, according to the consumer agency’s projections.
That would push many small lending operations out of business, lenders say. The $37,000 annual profit generated by the average storefront lender would instead become a $28,000 loss, according to an economic study paid for by an industry trade association.
Mickey Mays, the managing partner of Thrifty Loans in Ruston, La., said his company would have to close most or all of its 18 stores, which employ 35 people, if the rules take effect. Thrifty’s profit margins are already slender, he said, and the new restrictions would reduce the stores’ sales volume below what they could profitably sustain.
“We operate in small towns,” Mr. Mays said. “If the C.F.P.B. takes away these loans, they’ve got to answer the question, what happens after? There’s going to be a lot of people who have no place to turn in an emergency situation.”
Billie Aschmeller, 49, who lives in Springfield, Ill., took out a short-term loan two years ago, using her car as collateral. She said she had then found herself stuck — “like a hamster on one of those wheels” — in a cycle of debt.
Ms. Aschmeller, who is disabled and lives on a small fixed income from Social Security, said she had borrowed $1,000 to buy baby supplies for her pregnant daughter. She repaid $150 a month, she said, but those payments barely made a dent in the loan’s principal. A year later, she still owed $800.
“They loan you the money at these outrageous rates, and then they just bleed you,” Ms. Aschmeller said. She eventually paid off the loan by selling her car.
Lenders say the high rates they charge are necessary to cover their costs. Some economic data backs that claim: A study by the Federal Deposit Insurance Corporation’s research group concluded that loan losses and the overhead of running retail stores largely justified the industry’s interest rates.