The agency's guidelines and eventual regulation would cover payday loans as well as vehicle title loans, so-called high cost installment loans and open ended lines of credit.

The CFPB's guidelines proposed two possible approaches to preventing lenders from trapping consumers in debt due to high-cost short- or long-term loans. Lenders could adopt a “prevention” approach that would require underwriting the loan to ascertain borrowers' ability to pay and limit the number of loans lenders could make. Or lenders could limit loan amounts and the ability to rollover a payday loan, and offer consumers who do roll over a loan an affordable “off ramp” out of the debt, which is usually a pay over time element without fees.

The guidelines will also propose lenders must notify borrowers at least three business days before submitting a payment transaction to the borrower's financial institution, and would limit the number of times a lender could submit a charge for payment.

Read more: CUNA's Nussle issued a statement in reaction …

CUNA took a guarded reaction to the proposal.

“One of the goals of the founders of the American credit union movement was to create a system of cooperative finance that provided consumers with access to credit, including short-term, small dollar loans on fair terms and rates,” CUNA CEO Jim Nussle wrote in a prepared statement. “Therefore, CUNA supports the ability of credit unions to provide beneficial short-term, small loans as alternatives to predatory payday lending, which has no place in the financial marketplace.

“The extent to which credit unions will be able to continue to productively, efficiently and responsibly serve their members' short-term, small dollar credit needs will be a key measure we use in evaluating these proposals. If the rule results in consumers having reduced access to credit from credit unions, or if the access to credit is made more expensive by regulatory burdens imposed on credit unions, which would be more appropriately targeted toward the abusers of consumers, it will have failed to adequately protect consumers. We are evaluating the proposals the Bureau released overnight, and we look forward to discussing them with our members, the CFPB and other policymakers,” Nussle added.

NAFCU took a similar wait and see attitude.

“NAFCU and our members strongly support responsible short-term and long-term lending,” NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt wrote in a prepared statement. “We appreciate the CFPB looking at the practices of actors in the marketplace that could harm consumers. As with any rulemaking, NAFCU wants to ensure that there are no unintended consequences for credit unions. At first blush, the CFPB's announcement could touch upon many areas of lending and NAFCU will closely review the CFPB's potential rulemaking ideas to avoid those unintended consequences.”

The Consumer Federation of America, however, expressed more approval but joined with other organizations in believing the guidelines did not go far enough.

The consumer group noted that in addition to the ability to repay requirements for shorter and longer-term loans, the proposal also considers other options, such as offering lenders the option to forgo the review of a borrower's income and expenses before making a loan. It expressed particular concern about the guidelines allowing lenders to make up to three back-to-back payday loans. This option serves as a stamp of approval for back-to-back lending and could undermine stronger state protections, the organization charged.

“This initial proposal suggests several different paths the Bureau could pursue going forward,” said Tom Feltner, director of financial services for CFA. “None of this is set in stone, but giving lenders the option to make three loans in a row without requiring a straight-forward, common-sense ability to repay review should not be part of a final rule.”