Despite the protestations of payday lenders, many of their customers borrow from them again and again and again, according to a Chicago nonprofit.

The industry says its loans - which carry fees averaging 20% - are intended to be occasional, short-term fixes for consumers with cash flow problems.

But in a report last week the Woodstock Institute said many payday borrowers, unable to repay, roll their loans over regularly, paying huge sums in fees.

Payday lending has attracted interest from banks - and from regulators and legislators. In return for fast cash, the borrower writes a check that the lender agrees not to cash until the borrower's next paycheck arrives.

Critics have said the practice exploits the poor and traps them in a cycle of debt. Twenty percent fees on payday loans taken every pay period would equal an annual interest rate of more than 500%, the Woodstock Institute said.

The industry's newly formed trade group, the Consumer Financial Services Association of America, initiated a campaign in January to improve payday lenders' image.

The group said in promotional materials that the customers of its 48 member-companies are generally middle-class people, with incomes of $25,000 to $45,000, who "are making an informed short-term cash flow decision."

Because the payday loan is a short-term transaction, the group said, it is unfair to compare it on annualized percentage rate basis with other types of consumer loans.

But the Woodstock Institute, citing data from the Illinois Department of Financial Institutions, said that payday borrowers are disproportionately lower-income, and that many in fact are repeat customers.

Illinois and some other states limit the number of times a borrower can extend a payday loan, but there is no mandated waiting period between loans, the Woodstock Institute noted. "Even if a loan is only extended once or twice," it said, "the borrower can return to the lender many more times, allowing the lender to subvert the intent of regulations that limit rollovers."

The Woodstock report, which was released last week, recommended stricter regulations, including maximum rates that would allow for "reasonable but not excessive profits" and a mandatory waiting period between loans of at least 30 days to discourage continual borrowing. It also prescribed regulation at the federal level to prohibit national banks from circumventing state laws by exporting interest rates from their home states.

"The point that the Woodstock Institute is missing is that this industry has grown because of consumer demand and consumer choice," said James Zaniello, executive director of the Community Financial Services Association. He said the group asks its members to limit borrowers to four extensions and to give out brochures stressing that "this is a short-term transaction."

However, he said, "sometimes an unexpected financial situation cannot be solved in one payday." By forcing consumers to have a cooling-off period, as the Woodstock Institute advocates, regulators would be taking away choices from people who are in a crunch, Mr. Zaniello said.

Eagle National Bank of Upper Darby, Pa., which originates payday loans through brokers in 250 locations around the country, has voluntarily limited its borrowers to eight extensions and is now reducing that number to four, as recommended by the Consumer Financial Services Association, said Murray S. Gorson, the bank's president.

But he said some brokers that approached Eagle about doing business "see renewals as the way to make lots of money" and were not happy about the limit.

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