Payday lenders are in a hurry. Stocks crumble

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On twelve million Americans take out payday loans every year. It is a big business and controversial.

The United States Consumer Financial Protection Bureau has called these loans “debt traps“and on Thursday proposed new rules to curb the industry’s worst practices.

Payday loans usually have interest rates above 100%, much higher than payday loans. 15% to 30% annual interest rates on credit card debt.

Shares of major US payday lenders fell sharply in response to the announcement of additional regulations underway.

EZCorp (EZPW), which owns EZMoney loan stores, fell nearly 6% on Thursday, and Cash America (CSH), which operates Cash America, Cash Land and Pay Day Advance stores, slipped more than 4%.

Related: Online Payday Lenders Charge 700% APR

New rules: Borrowers often have to take out more loans in an attempt to repay the original loan amount. Under the proposed regulation, payday lenders would be expected to limit loans to an amount that people could repay without defaulting or having to borrow again. There would also be a 60 day “cooling off” period before someone could get another loan.

Another rule would prevent lenders from trying to access someone’s checking account without notifying them first. Lenders would also not be able to access the accounts more than twice in a row. Fees often add up quickly when someone doesn’t have enough money in their account to make the payment.

John Hecht, analyst at Jeffries, called the proposed new rules “more stringent and restrictive” than many had anticipated.

Related: Debt Collector Does Government Dirty Work

But some suggest the sale may be premature. These companies do not only payday loans, but also pawn shops and other short term cash opportunities.

“Our view is that this can be positive for publicly traded payday and installment lenders by forcing many smaller players out of business,” Guggenheim Partners wrote in a note to investors.

Desperate measures: People who take out payday loans are usually at a critical point in their finances.

“Payday loans may seem like easy money at first, but the average borrower ends up in debt about 200 days a year. If he takes out a $ 500 loan at regular rates, he pays more than $ 1,000 in interest and fees, “President Obama said in a speech Thursday.

Payday loans increased in the aftermath of the Great Recession. EZPW stock peaked over $ 38 in 2011, but has since retreated to trade below $ 10.

CNNMoney (New York) First published March 26, 2015: 4:22 p.m. ET

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