Last week, the Consumer Financial Protection Bureau (CFPB) has proposed new rules for payday loan companies.

President Obama has praised the CFPB for this step, which is aimed to keep a control on payday loan companies. President Obama shared that payday lenders are generally present in low income areas. They offer cash advances for a short term at a price.

He visited Alabama and found that payday loan stores were four times more than McDonald's food outlets. Experts affirmed that though payday loans are considered as easy money, a person gets trapped in a debt circle.

Therefore, the President has appreciated the work of the CFPB, which announced the rules on Wednesday. The rules will be presented for a review to a panel of small lender. People who need quick cash have to depend on these payday loans or short term loans.

These debts often come with triple digit interest rates. It is said that current situation of the payday loan industry stands at more than 22,000 storefronts across 35 states having an estimated $27 billion in loans.

The new rules have been designed in a way that will require lenders to verify the income of the borrowers and his/her financial obligations. The new rules will also limit the number of times, the loan can be renewed.

As per the Pew Charitable Trust, 12 million Americans were using payday loans in 2010. As many as 69% of those who used payday used cash to pay for credit card bills, rent, food and utilities. Other surprising finding was that an average of 8 loans were availed by borrowers to cover payday loans.

The payday industry warned that if the rules come into practice, many American would not be able to have access to any credit.