The American consumer finance watchdog is weighing up tougher rules to govern payday lenders, mirroring the recent clampdown on short-term loans in the UK.
The Consumer Financial Protection Bureau (CFPB), one of several new regulators set up in the US in the wake of the financial crisis, hopes to introduce the first ever set of national rules policing payday lenders.
The regulator plans to meet such lenders in the next few months to discuss ways to ensure customers can afford to pay back their debts, according to the Wall Street Journal.
The CFPB declined to comment on the report, but the watchdog’s leader Richard Cordray said last year that his team was “now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market”.
Payday loans are currently regulated at state level in the US, with 45 states enforcing some form of price cap. Some states, such as Washington, have imposed tougher rules such as limiting customers to eight short-term loans per year.
A study by the research company Policis found that six in ten online payday transactions made in the US are arranged with unregulated lenders, representing $9.7bn-worth of debt.
The United States also regulates short-term lenders through the Military Lending Act, a law that from 2007 has capped the annual percentage rate on payday loans at 36pc for those who served in the armed forces.
About a third of the payday loans in the United States are made over the internet. This is much lower than in the UK, where online loans group Wonga alone represents about a third of the market.
A price cap on payday loans for UK borrowers came into force on January 2, with firms banned from charging more than 0.8pc interest per day or more than twice the original loan in fees and fines.
The Financial Conduct Authority is also preparing to judge every payday lender’s application to operate in the UK, as part of its new role as the consumer finance regulator. The FCA inherited responsibility for 50,000 finance providers when it took over from the Office of Fair Trading in April 2014.