If you sometimes take out a payday loan from an online service or a local lender, you should be aware of proposed legislation from the federal Consumer Financial Protection Bureau in 2015. Currently, payday lenders are regulated by states, but the federal government is concerned about problems that some borrowers have managing these loans. You may not have trouble using payday loans as part of an occasional borrowing strategy, but the government wants to protect people who do.

Proposed Rule Changes

Considering the Borrower's Ability to Pay

Under one part of the proposed legislation, you would need to verify you can pay back the amount you borrow, along with the interest, within a certain time frame -- and with a minimal amount of hardship.

That means the lender must verify your income and only offer an amount corresponding to that income level, something not all payday lenders currently do. It also means the company must consider whether borrowers can pay off the loan in full, not just pay the interest and renew the loan. This could mean your having to supply information about your mortgage or rent and other expenses. 

Limiting Renewals

You could only roll over a loan twice in 12 months if these rules go into effect.

Increasing the Time Between New Loans

If you were to obtain three payday loans in quick succession, you'd have to wait 60 days to get another one. 

Providing No-Cost Extensions 

Lenders would be encouraged to provide no-cost extensions if the borrower cannot pay the money back. That's a substantial benefit to people who are having financial trouble. 

Federal vs. State Laws

Other than no-cost extensions, the proposed federal rules are already reflected in some state laws to varying degrees. However, state laws often don't go as far as some consumer advocates would prefer.

For instance, depending on where you live, you currently may be limited to rolling over one loan a handful of times, but you would be free to pay it off and take out a new loan as many times as you want.

Considerations for Consumers

Many payday loan customers will have problems with some of these proposed rules. For example, people with seasonal incomes may not qualify for payday loans under the new laws if these individuals apply when they're not actually working. In addition, some consumers specifically like the privacy of payday lending compared with bank loans, as they don't have to give out personal financial information or a Social Security number.

Some financial experts acknowledge the ongoing gap between payday lending and traditional lenders that makes short-term high-interest loans the only option available for many citizens. However, finding a compromise has been problematic. This type of legislation attempts to provide a solution. It isn't intended to ban payday lending, but to put more consumer protections in place. 

Interestingly, if the federal rules override current state laws, payday loans may become more accessible in some areas. The federal laws may be less restrictive than the state ones in some places. 

What This Means for You

The proposed rules may never go into effect, but it's smart to be aware of potential changes so you can plan ahead. 

For example, a seasonal worker might normally take out a payday loan in the middle of winter while making ends meet on unemployment and having to pay heat bills. This person could be accustomed to renewing the loan several times before paying it off. With these potential restrictions, that option would be more limited. 

Don't be blindsided if the proposed legislation does pass. Perhaps you could set a news alert on your favorite search engine or subscribe to a website feed that follows this issue. That way, you won't have to deal with any surprises the next time you want to apply for a payday loan from a company like Money 4 You.