Ryan Krueger is the co-founder of Krueger & Catalano Capital Partners LLC, a private money management firm in Houston focusing on special situations and stocks. He wrote the following (paraphrased) editorial for The Washington Times:

The recent outcry for a ban on fast cash advance lenders made me wonder how many of those pointing fingers ever tried to open one of the doors they want to kick down.

Have they listened to a customer describe what is on the other side?

The tasteful accusation at fancy dinner parties is that they prey on the low-income worker, trapping him into unsavory interest rates. The hosts need to ask the caterer or nanny used that same evening for their opinions.

Up front, I must disclose a bias of my own. I know about preying on the uninformed - those who have sold me their shares of a publicly traded online payday advance lender. I am a professional money manager. And one of my favorite bets is on an extraordinary streak continuing - the mismatch of capitalism versus Congress.

Payday lenders are under severe scrutiny with potentially sweeping regulations from Congress to applause from pundits far more quoted than me. I wonder which one did the math on the $40 his daughter ATM’ed last weekend.

More than $4 billion in ATM fees were paid last year. This “little” fee has not been declining like you may think. Bankrate.com found ATM surcharges have climbed 20 percent in the last two years alone. Why is paying a fee to get your own money less offensive than paying someone to borrow theirs?

At least a no fax payday loan provider is providing a service and capital not available elsewhere. Yet one rate is called usurious, the other is called a convenience fee.

Next time see your banker, offer to bet him on the over-under for NSF fees, toward the bank’s profits. Let him set the line and then take the offer. The $25 Non-Sufficient Funds fee is not often described at the chamber luncheon as a 311/4 percent rate calculated on the $80 check written to your plumber before a deposit hits.

Worry not about the plumber, he can easily be assessed late fees on his credit card while he waits to get paid. Why do payday loans on city street corners carry egregious costs but bouncing checks and cards in the suburbs is merely protection against a lack of sufficiency?

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A new report is warning money-strapped Christmas shoppers NOT to be tempted by offers for fast cash this holiday season … or they could end up with a very unhappy New Year.

The report criticizes the practices of regular and online payday loan companies - an industry popular in the Sauk Valley - claiming they are exploiting a loophole in a new Illinois law meant to keep customers out of insurmountable debt.

That law, the Payday Loan Reform Act, took effect this year after unanimously passing the Illinois House and receiving only one “nay” vote in the Illinois Senate.

The PLRA offers consumer protections on short-term payday advances by capping fees and mandating a “debt-free recovery period or repayment plan” after 45 days of continuous indebtedness, to give borrowers a chance to catch their breath and break the cycle of debt.

Released in October by the Monsignor John Egan Campaign for Payday Loan reform, the new report, titled Hunting Down the Payday Loan Customer, claims that in response to the new law, many cash loan lenders have switched most, if not all of their business, from the usual two- or four-week payday loan to longer, more expensive installment loans that typically last about 140 days.

The PLRA only regulates loans of 120 days or less.

The longer loans come with interest rates many times well above 300 percent when calculated as an annual percentage rate, according to the report.

In addition, the borrower’s fees aren’t capped, and no “debt-free recovery period” is guaranteed if the borrower can’t make the payments.

Often, a borrower will take out another bad credit payday loan to pay the money due on the first one, creating a spiral of debt, the report said.

Beside warning consumers, the report also calls on the Illinois Legislature to change the law.

“… companies offering unregulated payday installment loans are offering an expensive and dangerous product, and these new loans should be subject to the same strong consumer protections passed by the General Assembly for traditional short-term payday loans,” states the report.

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As controversy swirls around the use of Oregon payday loans, the reason why these resources have exploded in popularity has become more evident.

The state legislature passed a law to cap interest at 36 percent beginning in July. However, the cap will not apply to car title lenders, who make short-term loans using car titles as collateral.

Since the Legislature’s crackdown, one-fourth of the state’s payday advance lenders have also applied for conventional consumer licenses. Those are not affected by the interest rate cap.

Meanwhile, a new state report says more than 100,000 Oregonians had problems paying off payday and car title lenders last year. Due to their circumventing of the law, these instant payday loan lenders charged annual rates of interest that averaged 528 percent.

The Oregon Department of Consumer and Business Services released figures for 2005 showing payday lenders made more than 840,000 loans in 2005. That’s a 15 percent increase over the previous year.

In all, the cash advance loans were worth more than $278 million.

Paraphrased from The Oregonian, here’s an editorial related to the payday loan situation in the state:

The apologists for the payday and car-title lenders that exploit the poorest, most vulnerable Oregonians have long insisted there’s no real problem with lenders charging more than 500 percent interest on short-term payday loans online.

Look, they say: Few borrowers have filed formal complaints with the state. What’s the problem?

Well, it’s never made any sense to measure the fairness or the morality of fast cash loans by how few poor people know to go to the Oregon Department of Consumer and Business Services to formally complain about being ripped off.

Thankfully, there’s now better information before Oregon policymakers. The state consumer services agency has issued a report on payday advance and car-title loans showing that last year alone more than 100 borrowers lost their cars, 3,400 were sued and 104,000 had problems repaying loans.

You can see why: Payday lenders charged annual rates of interest that averaged 528 percent and topped out at an outrageous 2,551 percent, according to the report.

That’s obscene. This exploitation is still going on, too, because the Legislature chose not to put into immediate effect a law it approved April capping payday loan rates at 36 percent interest. That law doesn’t take effect until July 2007 - a delayed starting date designed to give no faxing payday loan lenders another crack at weakening the law in the next Legislature.

That won’t happen now.

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On Wednesday, Arkansans Against Abusive Payday Lending (AAAPL) released an updated study of payday lending in Arkansas that shows about half of the state’s 265 payday advance loan lenders are still not being regulated by the state.

Since an earlier survey was released in March, the state agency charged with regulating payday lenders, the Arkansas State Board of Collection Agencies, has taken some steps toward better licensing and stricter regulation, AAAPL said.

The latest data shows that 55 percent, or 146, of the state’s 265 payday cash loan lenders are now licensed and regulated by this state agency to make payday loans.

That leaves 45 percent unregulated, the report said.

Of those, the report said 38 percent, while licensed by the state, are not regulated and are allowed to make cash loans that don’t comply with the state board’s own regulations. Another 7 percent are neither licensed nor regulated by the state.

“Recent actions taken by the ASBCA represent a step in the right direction in favor of Arkansas consumers,” said H. C. “Hank” Klein, founder and president of AAAPL. “However, a regulation rate of 55 percent would still get an ‘F’ on any academic grading scale. While progress has been made, much more remains to be done.

No payday lender in Arkansas should be allowed to operate without both a license to make payday loans and meaningful regulation by the [state board].”

Among the state board regulations the report says lenders aren’t following:

• Customers having more than one check held by the same payday lender at a time
• Lenders making faxless payday loans in amounts greater than $400
• Loan terms longer than 31 days; and lenders not issuing loans in cash.

Quick payday loan lending in Arkansas has been the subject of constant litigation since the General Assembly adopted the Check Cashers Act of 1999.

The Supreme Court voided part of that law in 2001 in a case styled Luebbers v. Money Store Inc. but has not directly ruled on the question of whether the fees charged by payday lenders are tantamount to interest in excess of the constitutional limit, as argued by opponents of the short-term lending practice. If the fees are calculated as interest, the rates routinely exceed 300 percent.

More than 100 Oregonians lost their cars, and 104,000 had problems repaying after borrowing money from payday advance and car title lenders last year, a state agency reports.

According to the report and The Yakima-Herald, payday loan lenders charged annual rates of interest that averaged 528 percent and soared as high as 2,551 percent.

The Oregon Department of Consumer and Business Services released figures for 2005 showing payday lenders made 840,748 loans - a 15 percent increase over the previous year. The cash loans were worth more than $278 million.

The Legislature passed a law to cap interest at 36 percent, beginning in July. The cap will not apply to car title lenders, who make short-term loans using car titles rather than future paychecks as collateral.

Since the Legislature’s crackdown, a fourth of the payday lenders have applied for conventional consumer licenses, which are not affected by the interest rate cap and enable lenders to restructure payday loans into small installment loans and continue charging high interest.

The state agency is proposing to require cash advance loans from conventional lenders to exceed six months and be approved by experienced underwriters.

The department is proposing legislation to extend the 36 percent cap to car title loans and to limit check-cashing fees, also charged by many payday lenders, said David Tatman, administrator for the Division of Finance and Corporate Securities.

A coalition that includes churches, the Oregon Food Bank and AARP will push for a cap of 36 percent on all lenders in Oregon in the 2007 Legislature, said Angela Martin, economic fairness director for Our Oregon, a progressive nonprofit group in Portland.

The new speaker of the House, Rep. Jeff Merkley of Portland, said he may ask a committee to consider further regulations, possibly an across-the-board cap on interest rates.

The government is unfairly targeting regular and faxless payday loan lenders, said Luanne Stoltz, a payday lender and vice president of the Consumer Financial Services Association.

“We think consumers should be allowed to make decisions about what loans are right for them, and the market should set the rate,” she said. Most customers pay back their loans without problems, she said.

That didn’t last long.

A spokesman for the nation’s largest payday lender said Thursday that despite its promise to stop making payday loans to military families, it must continue or violate an Arkansas law passed just last year.

Advance America, amidst fanfare and with a full-page ad in USAToday last September, said it would stop making payday loans to the military in October - but earlier this week, an employee of the Jacksonville Advance America branch assured one Little Rock Air Force Base airman’s wife that she could borrow as much as $350 for two weeks at an annual interest rate percentage of 336 percent.

By way of contrast, 8 percent would be a high home mortgage rate, but only payday lenders are exempted from the state’s 17 percent usury cap.

The sponsor of that act, state Rep. Jeff Wood, D-Sherwood, who is an Arkansas National Guardsman and a lawyer, called it ironic that his law, designed protect the civil rights of military members, was being used by payday cash advance lenders to continue to prey upon them.

Wood called Advance America’s interpretation of his legislation “a crafty argument.”

“That’s not the intent of the legislation,” Wood said Thursday. “The intent is to protect servicemen.”

“Making loans to military at triple-digit interest is not doing them a favor,” said Hank Klein, founder of Arkansans Against Abusive Payday Lending.

“It does not protect them. I think it’s pretty sad that they would make that statement and then back off and say the law prevents them from quitting such loans.”

In October, Congress passed a law capping interest rates on loans to military personnel at 36 percent. The Arkansas Leader reported on this story of what has changed.

When asked Thursday why Advance America continued to make such loans in Arkansas, spokesman Jamie Fulmer said it was required by Arkansas law.

Advance American announced Sept. 25 that it would “respectfully and voluntarily refrain from making any payday advances to active, full-time members of the military effective Oct. 15, 2006, except where strictly prohibited from doing so by applicable law.”

It was the “except where strictly prohibited from doing so by applicable law” portion that requires Advance America to continue making those payday cash loans in Arkansas under Act 12-62-1205, according to Fulmer, director of investor relations.

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Despite the efforts of consumer advocates around the nation, the cash advance business has not seen much of a slowdown. A major reason for the continued popularity?

The extension of these resources beyond mere storefronts. Now, thanks to online payday loans, anyone with access to a computer can apply for quick money.

A number of states have passed laws trying to regulate payday lenders, who charge their customers exorbitant interest rates, by forbidding them from doing business in their states. The online lenders, however, seek out clever loopholes.

“All aspects and transactions on this site will be deemed to have taken place in our office in the State of Delaware, regardless of where you may be viewing or accessing this site,” reads the disclosure language on APPLE Fast Cash Personal Loans’ Web site.

“Borrower is responsible for complying with any local statutory obligations that may exist in their state or area with respect to any transactions with APPLE Fast Cash Personal Loans.”

Recently, West Virginia Attorney General McGraw filed suit to enforce investigative subpoenas against 14 Internet payday lenders and to enjoin their usurious lending activities in his state.

McGraw also announced that his office has reached formal settlement agreements with 18 other online payday loan lenders in which they promised to permanently discontinue their payday loans here and to refund all unlawful fees and charges collected from West Virginia consumers.

McGraw said the latter agreement will result in tens of thousands of refunds and canceled debts for hundreds of West Virginia consumers.

McGraw said the 14 Internet lenders made payday advances to consumers in their homes via interactive web sites and have claimed that states, including West Virginia, cannot regulate their lending activities. The state, he says, sees it differently. The defendants require payment of interest with Annual Percent Rates (”APR”) ranging from 600 to 800 percent APR.

The State of West Virginia has a maximum allowable rate of 18 percent APR for consumer loans.

A new study by the state Department of Financial Institutions noted that payday loans are a $1.4 billion business in Washington.

The study, released last week, said the industry loaned that amount to clients in 2005, with the average loan at $385. During that year, businesses collected $174 million in loan fees with an average fee of $48.

In Washington, the maximum term of a cash loan is 45 days with a maximum amount of $700.

Lenders can charge a 15 percent loan fee on the first $500 and a 10 percent fee on anything above that amount; therefore, companies can charge as much as $75 for a $500 loan and $95 for a $700 loan.

According to the study, the industry has grown dramatically just since 2000, when there were 90 payday advance loan companies in the business in Washington and 377 locations. In 2005, there were 131 separate lenders with 716 locations. During that same period, loans have risen from a total of $581 million to the $1.4 billion.

In 2005, the most common length for the loans was from one to two weeks. A two- to three-week period was also common, with the average loan spanning 18.3 days. The Everett Herald released these figures.
Overall, cash advances have drawn increasing criticism due to the high annual rates related to the short term payday loans.

Washington state restricts the amounts that can be charged and also requires borrowers with four successive loans to be allowed to develop a payment plan to settle their debt over a longer period.

Nationwide, the industry loans out $40 billion a year and has more than 22,000 locations, according to an industry trade group. That’s 8,000 more locations than there are for McDonald’s restaurants.

The state agency didn’t list any recommendations for the industry, saying the faxless cash advance study was conducted just to provide information for policymakers.

A lawsuit challenging Arkansas laws allowing payday advance fees that exceed the state’s interest limits again will return to a Pulaski County Circuit Court. The Arkansas Supreme Court sent the case back Thursday to the lower court.

While declining to make its own ruling on constitutionality of the Arkansas Check Cashers Act, the Supreme Court reversed and remanded the case to Judge Barry A. Sims for the second time.

The court’s decision keeps the instant payday loan lawsuit against the 1999 act alive for those suing, who claim it violates the state constitution by allowing payday lenders to make consumer loans with interest rates of more than 17 percent annually.

An opinion written by Associate Justice Donald L. Corbin disagreed with the lower court’s decision that said the plaintiffs must first exhaust administrative appeals before seeking a decision by the courts.

Todd Turner is an Arkadelphia lawyer representing the plaintiffs. He says the court’s decision on the use of bad credit payday loans will force a decision on the legality of the act.