Obama To Announce Government's First Move To Regulate Low Capital And High Interest Loans, Continuing Crusade Against Lenders

The Wall Street Journal's Yuka Hayashi reported on the Obama administration's plan to regulate high-interest low-dollar "payday loans," a $38.5 billion market currently left to the states.

The proposed payday rule is a law that requires lenders to assess their borrower's "ability to repay making it harder for lenders to roll over loans" according to WSJ. Similar practices often create increased borrowing fees due to the extra effort on the lender's part. This week's new rule seeks to "overhaul the corner of the financial market largely "abandoned" by banks" where low capital, short term loans have interest rates over 300% according to Hayashi.

The effort is to continue Obama's efforts to "change the balance of power between consumers and financial institutions" before his second term ends in the upcoming year said Hayashi.

Legal Challenges and Backlash

Additional efforts include rules governing bank overdraft fees, debt collection, and prepaid cards on a federal level which are planned to be implemented within the following few months. Although these efforts have been applauded by consumer groups and Democrats, they have "prompted multiple legal challenges from the industry complaining of overreach and a backlash from Republicans vowing to rein it in if they win November's elections" said Hayashi.

The rule will go through 90-day public commentary period, "with a formal rollout expected next year" according to Hayashi.