Kevin McCoy

USA TODAY

Lenders who offer payday loans and other small-dollar advances would have to assess whether borrowers could afford and repay the debts, according to a federal rule proposed Thursday.

The long-awaited Consumer Financial Protection Bureau proposal would also cut off repeated debit attempts that hit overdue borrowers with additional fees and charges as lenders seek repayment.

The regulator also launched an inquiry into other high-risk loans and practices not covered by the new proposal, including open-end lines of credit and methods lenders may use to seize borrowers' wages, vehicles or other personal property.

The rule proposal followed a 2014 CFPB study that found roughly 62% of all payday loans — often due within two weeks and carrying an annual interest rate of approximately 390% — go to consumers who repeatedly extend their repayments and ultimately owe more in fees than what they initially borrowed.

CFPB: Online payday loans hit consumers with hidden risk

Half of the borrowers who got similar high-interest loans online later were hit with an average of $185 in bank penalties for overdraft and non-sufficient funds fees, another CFPB analysis found this year.

More than 80% of auto title loans, transactions in which consumers pledge their vehicles as collateral, are rolled over or extended on the day they're due because borrowers can't afford to pay them in full, the CFPB also found.

Single-payment auto title loans are gateway to trouble, report suggests

"Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt, CFPB Director Richard Cordray said in a statement issued before a Thursday hearing scheduled on the issue. "By putting in place mainstream, common-sense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail."

A coalition of faith and community leaders planned to rally Thursday and urge the CFPB to enact the rule. Payday loan industry representatives scheduled a news conference before the hearing. Noting that millions of Americans live paycheck to paycheck, Consumer Bankers Association CEO Richard Hunt said the proposal could send consumers "to pawnshops, offshore lending, and fly-by-night entities that will be more costly."

"The CFPB's proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense," said Dennis Shaul, CEO of the Community Financial Services Association of America. "It also sets a dangerous precedent for federal agencies crafting regulations impacting consumers."

The proposed rule, open for public comment until Sept. 14, includes:

A full-payment test that would require lenders to determine whether borrowers can afford to make each repayment on time and still cover basic living expenses.

A provision that would enable consumers to borrow a short-term loan up to $500 without requiring a full-repayment test. Lenders could not offer the option to consumers with outstanding short-term or balloon-payment loans.

An option for lenders to offer two longer-term loan options with more flexible underwriting if the lanes pose less risk.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc