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Financials

Possible Democratic VP picks push for strict payday loan rules

WASHINGTON, July 20 (Reuters) - Two Democratic Senators mentioned as possible vice presidential picks, Sherrod Brown and Elizabeth Warren, on Wednesday said a U.S. proposal to crack down on payday loans does not go far enough.

Last month the Consumer Financial Protection Bureau (CFPB) unveiled a proposal to restrict payday lending. The industry is accused of preying on desperate consumers with high-cost loans but is also viewed as a last-ditch source of money. The CFPB proposal would require lenders to use a “full-payment” test to determine whether borrowers can afford the loans and would bar lenders from taking auto titles as collateral.

Brown, of Ohio, and Warren, of Massachusetts - who frequently push for tighter financial regulation - sent a letter to the CFPB along with more than two dozen other Democratic Senators, questioning the analysis of borrowers’ ability to repay the small-dollar, short-term debts under the proposal. They took issue with allowing lenders to make six loans to a single borrower as long as they meet set conditions, and with leaving out “certain problematic long-term loans, which may include high origination fees,” from the analysis.

They also questioned the 30-day period borrowers would have to wait between taking out the loans.

“We urge the CFPB to ensure that a cooling off period is long enough that borrowers can manage their expenses and are not reborrowing to service prior short-term loans,” they wrote.

The CFPB will review all comments on the proposal, due Sept. 14, before issuing a final version.

The CFPB has become a political hot potato, with Republicans, including presumptive 2016 presidential nominee Donald Trump, questioning its role and vowing to undermine its authority. They say any attempt to restrict short-term loans of less than $500 would cut off struggling consumers’ access to a regulated financial lifeline.

Democrats, who largely back the CFPB’s proposal, say a rule is necessary to rein in abusive payday lenders, who can charge fees as high as 390 percent. (Reporting by Lisa Lambert; Editing by Andrew Hay)

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