The Consumer Financial Protection Bureau says it is in the late stages of formulating new regulations for the payday lending business.

The announcement, embargoed for release until midnight Tuesday, came as the agency published new research that it's expected to use in writing the rules.

The research suggests that many consumers who use payday loans do not get stuck in a long-term cycle of debt, but the industry derives most of its revenue from consumers who borrow again and again.

More specifically, the research finds that more than 80% of all payday loans are either rolled over or "renewed" within two weeks — a point that the industry's critics are expected to cite. But it also finds that about 55% of new payday loans are either never renewed or only renewed once — a finding that payday industry representatives seem likely to highlight. The report defines renewals as payday loans taken out within 14 days of repayment of a previous loan; rollovers are extensions of unpaid loans.

The report defines renewals as payday loans taken out within 14 days of repayment of a previous loan; rollovers are extensions of unpaid loans.

Broadly speaking, the findings are in line with previous studies of payday lending.

CFPB Director Richard Cordray is expected to say Tuesday that some payday loans should continue to be available but that new restrictions are coming.

The agency's concern "is that all too often those loans lead to a perpetuating sequence," according to a copy of remarks he plans to deliver at an agency hearing on payday lending in Nashville. "That is where the consumer ends up being hurt rather than helped by this extremely high-cost loan product."

The report suggests that certain state-level restrictions on renewals of payday loans have been ineffective in preventing borrowers from getting caught in a debt cycle.

California, Iowa, Kentucky, Michigan, Mississippi, Nebraska, New Mexico, South Carolina and Tennessee all ban rollovers of payday loans, but they allow borrowers to take out new loans on the same day that the earlier loan is repaid. Alabama, Florida, Virginia and Wisconsin all have a waiting period of at least one day before a new loan can be made.

But the percentage of payday loans in all those states that get renewed within 14 days tops 80% on average, the CFPB found. The renewal rates are only slightly higher in states that don't have any restrictions on rollovers.

Those state-by-state findings suggest that the CFPB may be looking to place more significant restrictions on rollovers than numerous states have imposed.

One potential model is the regulatory guidance issued last year by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, which requires banks to allow at least one monthly statement cycle to elapse before offering another small-dollar consumer loan.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.