In early June the federal Consumer Financial Protection Bureau (CFPB) proposed new rules regulating lenders in the payday loan industry. Although the bureau is more limited than state legislatures when imposing rules on lenders, the latest regulations may limit the pool of borrowers by requiring them to prove their ability to repay the loan without defaulting on other financial commitments or incurring expensive penalties.

Consumers seeking payday loans typically need quick access to small loans to cover unexpected expenses or a budget shortfall. In exchange for the loan the borrower gives access to a checking account to recover the loan and fees. If the loan and fees aren’t paid back within the designated time period—usually the next pay day—the initial amount can quickly escalate as high interest rates and fees are charged to the ever-accumulating debt. It is common for rates higher than 300% to be imposed on an initial small loan of a few hundred dollars, ultimately generating hundreds of dollars in fees and penalties.

Advocates for reforming abuses within the payday industry are asking the public to monitor and comment on the rulemaking process, which continues through September. The concern is potential changes and revisions to the new rule will create loopholes that undermine the efforts of the CFPB to protect consumers. Another concern is the payday industry will expand services into other areas to compensate for the loss of revenue if the new rules are upheld.

While Iowa prohibits car title loans, further action is needed to help borrowers avoid the payday loan debt trap. This week’s CFPB action is important, but only a start.