"Consumers who turn to payday loan operations with names like "Check Into Cash," "Dr. Check" and "Checkloan" for quick cash wind up paying interest rates that would make a loanshark blush," said Ed Mierzwinski, Consumer Program Director of U.S. PIRG.

In a typical payday loan, a consumer writes a personal check for $115 to borrow $100 for two weeks (until payday). The Annual Percentage Rate (APR) on this loan is 390%. At the end of the two week period, the consumer often "rolls the loan over," or pays an additional $15 to carry it for two more weeks, increasing the finance charge on a $100 loan to $30.

"No matter how desperate the consumer, no lender should be able to gouge the public with such high-cost loans," said Jean Ann Fox of CFA. "Payday loans trap consumers on a debt treadmill and expose borrowers who can’t pay to coercive collection tactics."

The new report, "Show Me The Money" surveys 230 payday lenders in 19 states and the District of Columbia. It also analyzes the status of payday lending legislative activity in these and other states around the country. Key findings of the report are:

• Nationally, 23 states and the District of Columbia have legalized payday lending by enacting industry-sponsored legislation that exempts the firms from usury and other credit laws. An additional 8 states allow payday lending because they have neither a usury limit nor other small loan rules. The remaining 19 states prohibit payday lending through a combination of interest rate ceilings and/or usury laws.
• Payday lenders are partnering with banks and thrifts to make loans, especially in states such as Virginia and Texas that prohibit payday lending. National banks, such as Eagle National Bank and Banco Popular, claim that they don’t have to comply with most state interest rate ceilings. Other banks and thrifts making payday loans include County Bank (DE), Web Bank (a Utah industrial loan company), and Goleta National Bank (partner with Ace Cash Express).
• Payday lenders are not just "mom and pop" corner store operations. Many are part of national chains, although payday loans are being made through pawn shops, at gas stations, over the Internet, and via faxed applications. The industry forecasts more than $2 billion in revenues this year.
• Nationally, the average APR calculated by PIRG/CFA researchers was 474% for a two-week loan. Most payday lenders questioned either failed to quote an APR, denied that an APR applied to the loan, or wrongly quoted the low two week rate, rather than the correct annual rate.
• Payday lenders, who claim that their loans are preferable to bouncing checks, charge consumers bounced check fees averaging over $22 if a payday loan check is returned for insufficient funds, with bounced check fees as high as $40 per check.

The report also summarizes legislative activity in 1999 and examines ongoing activity that has already begun in a dozen states. The industry is pushing legislation in Arizona, Colorado, Florida, , Georgia, Indiana, Maryland, Michigan and Virginia. Bills to tighten restrictions on payday lenders are pending in California, Illinois, Kentucky and Wisconsin. State Attorneys General in Maryland and Indiana recently held that payday lenders are subject to state small loan rate caps.

"Congress and federal regulators should close the national bank loophole used by payday lenders," said Fox. "States must be able to enforce their usury and small loan laws to protect their citizens."

"US PIRG calls on Congress and state legislatures to protect consumers against these atrocious predatory lending practices by passing tougher laws." said Mierzwinski. The groups urged the following national reforms:

• The 19 states that prohibit payday lending should strictly enforce their small loan rate cap and usury laws to protect consumers from exorbitant small loan rates charged by payday lenders.
• The 8 states without usury ceilings or other small loan laws applicable to payday lending should cap their rates or, at least, adopt the CFA/National Consumer Law Center model payday loan law.
• The 23 states and the District of Columbia that have already legalized payday lending should, at a minimum, lower permissible interest rates and strengthen consumer protections based on the CFA/NCLC model act.
• Congress should regulate payday lenders by enacting HR 1684 introduced by Rep. Rush (1st-IL). Congress should stop the national bank regulators from allowing nationally-chartered banks and thrifts to provide protection to payday lenders from strong state consumer protection laws by enacting legislation being drafted by Rep. John LaFalce (29th-NY), ranking member of the House Banking Committee.. The Senate should support the Wellstone (MN) high-cost credit amendment to the bankruptcy bill, S. 625, pending on the Senate floor.

The groups recommended that consumers avoid payday loans by solving financial problems without going deeper in debt by, for example, asking for more time to pay a utility bill. If a loan is unavoidable, consumers should shop for the lowest cost credit available, comparing both the dollar finance charge and the Annual Percentage Rate. Cash advances on credit cards and traditional small loans are less expensive than a typical payday loan.

"Last week, the payday lender trade association issued a so-called "best-practices" platform that isn’t good enough for consumers," concluded Fox. "Even if payday lenders complied with all those proposals, loans would still cost more than 300% interest and trap borrowers in debt. Consumers need real protection against usury, not unenforceable public relations ploys."

"It’s no secret that the payday lenders have grown astronomically by exposing consumers to second-class legal protections," concluded Mierzwinski, "It’s time for our elected officials to protect consumers by rejecting unfair payday lender proposals."

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U.S. PIRG is the national lobbying office for state PIRGs. The state Public Interest Research Groups are statewide non-profit, non-partisan consumer, environmental and good government advocacy groups with members across the country.