WASHINGTON - The payday loan industry responded to political pressure on Tuesday and revised its "best practices" to modify its relationship with commercial banks.

Banks that partner with payday loan companies should set their own credit criteria, approve and fund each advance, and permit the payday lender to purchase only a small amount of the loan, according to the standards issued by the Community Financial Services Association of America. The payday lender trade group also recommended that members observe limits on rollovers imposed by the state where a loan is originated.

"The changes to our 'best practices' reflect CFSA's responsiveness to the emerging concerns of policymakers as well as our commitment to providing substantive consumer protections and ensuring the long-term success of the industry," said the group's president, Billy Webster. (The group originally adopted its best practices in January.) Mr. Webster is also chief executive officer of Advance America Cash Advance Centers in Spartanburg, S.C.

Payday lenders - which advance money against a customer's paycheck - have come under fire for teaming up with banks to get around interest rate caps imposed by roughly 15 states. Banks are not subject to these caps, because federal law permits them to "export" the rate permitted in one state to other states with tougher usury laws.

"The industry should be more responsible than following just the letter of the law," said Sam Choate, executive vice president of Check into Cash Inc. of Cleveland, Tenn. "We don't want to be perceived as trying to avoid state regulatory practices."

The trade group may have paid a steep price for its tougher stance. Dollar Financial Group and ACE Cash Express - two big members - pulled out. Representatives of Dollar, which partners with $52 million-asset Eagle National Bank of Upper Darby, Pa., said it quit because of the rollover limitations in states with tougher laws.

"We agree with CFSA on 99.9% of what they are trying to do," said Don Gayhardt, president of Dollar Financial Group, "but it isn't fair to prevent Eagle to have the benefit of exporting their rates."

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