In an age of easy credit and mounting consumer debts, a new study says Americans are dishing out $3.4 billion a year in payday lending fees.

Payday lenders, who cash post-dated checks at large annual percentage rates -- on average above 400 percent -- are under fire again, this time by the North Carolina-based Center for Responsible Lending.

On Thursday, the center released what it called the first study to quantify the costs of so-called "predatory lending fees."

"The dirty secret of payday lending is that its business model depends on trapping working people into a vicious cycle of repeated transactions," said Eric Stein, spokesman for the center. "Payday loans don't solve families' financial problems, they create a new one every two weeks."

According to the report, 91 percent of payday loans are made to borrowers who incur five or more payday loans a year. The average annual pay of those borrowing from payday lenders is $18,700.

In other words, the report says, borrowers can't repay their original loan, getting caught in a trap of repeated transactions.

Rebekah O'Connell, a credit counselor with Triangle Family Services of North Carolina, said one of her clients is paying a 995 percent interest rate, or $90 in interest every two weeks on a $300 loan.

"It is only one of the three payday loans he is juggling," O'Connell said. "John is stuck in a revolving trap so tight he can no longer pay everyday living expenses because the monthly fee on his three loans is $510. None of that goes to pay down the original loan amount."

In Utah, payday lenders are required to display signage that discloses annual percentage rates and fees, according to Ed Leary, commissioner for the Utah Department of Financial Institutions. In addition, payday lenders must register with the department.

However, there is no usury law in Utah, meaning lenders may charge any interest rate.

Leary said there are roughly 100 payday companies in Utah, with 400 offices offering payday loans and/or check cashing services.

"Since we've been tasked with supervising that industry we continue to receive very, very few complaints," Leary said. "In fact, our (phone) number is required to be posted."

Recently the Utah Legislature passed a law allowing payday borrowers a 24-hour window to rescind a contract.

"If a person takes out the money and 24 hours later comes back, they'll give them the money back, no interest charged," Leary said. "Most people in the banking world cannot believe that would go on."

Yet in spite of the regulations, Julian Bond, chairman of the board of directors for the NAACP, said payday lending in any form is unacceptable.

"A drive through any low-income neighborhood clearly indicates people of color are a target market for legalized extortion," Bond said. "Visits to payday stores -- which open their doors in low- income neighborhoods at a rate equal to Starbucks opening in affluent ones -- are threatening the livelihoods of hardworking families and stripping equity from entire communities."

Jean Ann Fox, director of consumer protection for the Consumer Federation of America, said borrowers need better protection from their state legislatures.

"In the 35 payday loan states, the lowest cost of a $100, two- week loan is $15, which translates to 390 percent annual interest rate," Fox said. "Another way to think about this is paying $390 a year for a $100 line of credit."

Fox said 33 states and the District of Columbia have enacted laws or regulations that legalize payday lending. Another two states have no limits at all for check-based loans. Fifteen states do not sanction checks for loans and are trying to enforce usury and small- loan rate caps.

A 2001 study by the Utah Consumer Lending Association said 67 percent of payday borrowers were satisfied with their most recent payday advance.

Tracy Rawle, vice president of Check City, a payday lender with 30 office locations throughout the country, said most payday loans are a short-term transaction.

And, he said, in Utah a borrower can only extend a loan four times past the original transaction.

"It would be like trying to show that a taxi cab is way too expensive because to take one to New York would take thousands of dollars where it's only intended to take you a few blocks or a mile," Rawle said. "The consumer groups are painting the customer as being someone not intelligent enough to make a decision on getting these loans. . . . The one thing that consumer groups don't point out is the millions and millions of dollars saved in bad check fees, late fees."

While the Consumer Federation of American said default rates on payday loans are 2 percent to 3 percent, Rawle said at his company the rate is between 20 percent and 30 percent.

"It is being misleading. They are trying to make the point that these guys are charging these exorbitant fees and have a very low loss ratio," Rawle said. "We don't know anybody in this business that has a 3 percent default rate."

The payday lending industry was virtually non-existent 10 years ago, according to the CFRL report, but the industry has experienced explosive growth -- from $10 billion in loans in 2000 to $25 billion in 2003.


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