Predatory lending firms are once again under fire from the federal government, as the Consumer Financial Protection Board has issued a new set of rules geared toward curbing lending abuses by the payday loan and auto title loan industries.

First and foremost, the CFPB is requiring payday and auto title lenders to consider more thoroughly a borrower's ability to repay a loan in full without hardship or additional borrowing. That mandate will "require lenders to review income and expenses to ensure that the borrower has the capacity to make loan payments without falling behind on housing, food, child care, medical or other debts," the CFPB reports.

To combat high NEW YORK (MainStreet) predatory lending fees, the CFPB will also require lenders to notify borrowers of imminent payments and contact a borrower after two unsuccessful attempts to collect a payment and reauthorize access to a borrower's bank account. The mandate would also stop payday lenders from using other collection devices, such as a borrower's debit card or electronic check to circumvent this protection. According to the CFPB, online payday lending triggered at least one overdraft or NSF fee for about half of all borrowers, and those borrowers paid an average of $186 in fees per year in addition to triple digit interest rates and other fees.

Although critics say the new rules won't completely eliminate unscrupulous payday loan and auto title lenders, the CFPB action is a step in the right direction.

"The proposed rule...is the best chance consumers have at avoiding further harm caused by payday and car title loans," says Tom Feltner, director of financial services at Consumer Federation of America. "Getting this rule right means requiring lenders to fully consider a borrower's income and expenses and make a fair determination that, at the end of the month, there is enough money left to pay living expenses and loan payments without hardship or re-borrowing with additional interest."

But others say the new rules don't go far enough in stamping out unscrupulous short-term lenders.

"The Consumer Financial Protection Bureau's proposed rule on payday and car title lending is a step in the right direction, but there is still much work to be done to ensure this rule truly protects consumers from the legalized loan sharks who prey on our communities," says Liana Molina, a spokesperson for the California Reinvestment Coalition. "Fortunately, we have the opportunity to provide feedback on the proposal before it goes into effect." Molina says the California Reinvestment Coalition members and allies "will be weighing in over the next 90 days to highlight the importance of closing loopholes in what is otherwise a well-thought out proposal. In doing so, the CFPB can stop the debt trap once and for all."

The damage short-lenders can inflict on unwary U.S. consumers can be significant.

12 million Americans take out payday loans every year, according to the Pew Charitable Trusts, and spend $9 billion on loan fees alone. An additional 2.5 million take out auto title loans annually at a cost of $3 billion, the organization states.

One big problem is that payday lenders have direct access to a borrower's checking account or, in the case of auto title lenders, the power to repossess a borrower's vehicle, Pew says. That can lead to deeper financial trouble for borrowers.

"Pew's small-dollar loans project has conducted extensive research on this high-cost loan market over the past five years, and the findings show that although payday and auto title loans offer quick cash, the unaffordable payments lead consumers to take out additional loans to cover expenses, creating a cycle of debt," the organization reports.

Payday loan reform is urgently needed, but without changes, the CFPB's draft regulation misses the mark, says Nick Bourke, director of small dollar loans at the Pew Charitable Trusts. "Pew's research shows that borrowers want three things: lower prices, manageable installment payments, and quick loan approval. The CFPB proposal goes zero for three."

"Even with the new rules, a $400 payday installment loan will still cost a typical borrower more than $350 in fees," he adds.

Other ending industry experts say that, as written, the CFPB rule contains exceptions and loopholes that abusive lenders will use to evade the rule's protections and continue to trap vulnerable borrowers in unaffordable 300%-and-up interest loans.

"At the heart of this proposed rule is the reasonable and widely accepted idea that payday and car title loans should be made based on the borrower's actual ability to repay - while still meeting other basic living expenses," says Mike Calhoun, president of the Center For Responsible Lending. "Currently, the industry's business model allows for lenders to seize money directly from a borrower's bank account. Lenders easily and directly collect loan payments, regardless of whether borrowers can afford the full repayment without defaulting on other expenses. Similarly, with car title loans, lenders threaten repossession of a borrower's car to coerce repayment."

While acknowledging the ability-to-pay principle as an important first step, the ultimate goal of the rule should be to prevent consumer harm, Calhoun adds. "As currently written, the rule contains significant loopholes that leave borrowers at risk, including exceptions for certain loans from the ability-to-repay requirement, and inadequate protections against "loan flipping" - putting borrowers into one unaffordable loan after another."

Calhoun believes the most effective rule regulating payday loan and auto title lenders should accomplish three main tasks:

1. Apply ability-to-repay requirements to every loan.

2. Increase protections against loan flipping.

3. Cover any loan that enables lenders to coerce repayment from borrowers.

While those rules aren't on the table together yet, payday lenders are now on notice that they're being watched closely by federal regulators. Whether that spurs meaningful changes among payday lenders and auto title loan firms is still a big question.

Some lending industry insiders say it's a question that needs to be answered right now, before borrowers dig themselves a deeper financial hole.