Kathleen Laura Kraninger testifies before the U.S. Senate Committee on Banking, Housing and Urban Affairs on her nomination to be director of the Bureau of Consumer Financial Protection on Thursday, July 19, 2018 on Capitol Hill in Washington, D.C.

Kathleen Laura Kraninger testifies before the U.S. Senate Committee on Banking, Housing and Urban Affairs on her nomination to be director of the Bureau of Consumer Financial Protection on Thursday, July 19, 2018 on Capitol Hill in Washington, D.C. (Ron Sachs/CNP/Zuma Press/TNS)

WASHINGTON - The nation's new consumer financial watchdog proposed Wednesday to significantly water down tough pending rules on payday and other short-term loans designed to prevent lenders from taking advantage of cash-strapped Americans.

The proposal by Kathy Kraninger, who became director of the Consumer Financial Protection Bureau in December after being nominated by President Trump, would eliminate provisions requiring lenders to determine if borrowers can repay the short-term loans.

The bureau's proposal to revise the rules "suggests there was insufficient evidence and legal support for the mandatory underwriting provisions" proposed in 2017 under Obama nominee Richard Cordray, according to a bureau news release. They would be the first federal rules on payday loans.

The bureau also is "concerned that these provisions would reduce access to credit and competition" in states that allow payday and other short-term loans, such as those secured by a vehicle title, the release said.

Kraninger also wants to delay the rules, set to take effect in August, until November 2020. Payday loans are allowed in California and 32 other states, with the rest prohibiting them.

An estimated 12 million Americans take out payday loans each year from websites and about 16,000 storefront locations. The loans typically are cash advances on a worker's paycheck for two to four weeks and carry a flat 15 percent fee or an interest rate that doesn't seem particularly high.

But costs can quickly add up if the loan isn't paid off, and the effective annual interest rate is actually 300 percent or more, the bureau said when it announced the regulations in October.

The rules as proposed in 2017 would require payday lenders to determine up-front the ability of potential borrowers to repay short-term loans of 45 days or less. If the short-term loan period expires and the debt is unpaid, borrowers can face painful charges or be forced to refinance the loan, creating what consumer advocates see as a debt trap.

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