It’s an all too typical scenario.

Consumers find themselves strapped for cash, so they take out a cash advance to cover the bills. Then comes time to pay the loan, and they have to borrow more money to meet their obligation. The problem is, these loans are not being provided by their banks, they’re being provided by predatory payday lenders. And it’s not the money that’s being borrowed that is causing the financial strain, it’s the interest rates, some as high as 400%.

That translates to $2,000 in yearly interest on a $500 faxless payday loan, amounting to over $150 in interest each month.

According to the Center for Responsible Lending, there are over 22,000 payday advance loan lenders operating in the U.S; costing American consumers over $4.2 billion each year in fees. Ninety-nine percent of payday loans go to repeat borrowers, proving that this dangerous financial practice quickly becomes a vicious cycle that sets consumers sinking into financial quicksand.

“Consumers who borrow from a payday lender are putting themselves at a huge financial risk,” says Ann Estes, Vice President of Client Education and Counseling Delivery for ClearPoint Credit Counseling Solutions. “It’s a revolving door of high-interest rates and repeated borrowing that leaves many consumers unable to keep up. They are not borrowing from Peter to pay Paul, they’re borrowing from Paul to pay Paul. This practice is an indicator of a larger financial problem that needs to be addressed.”

Consumers often turn to no fax cash loan lenders because there is a shortage of cash flow, and they need help until the next paycheck arrives. But consumers who are struggling to make ends meet have many other options to consider before knocking on a payday lender’s door.

“There are so many other avenues to consider that there is no reason to use a payday lender,” Estes suggests. “Financial counseling is a great place to start, and there are many no-cost tools and strategies available to consumers to help get them back on track.”

ClearPoint Financial suggests the following tips to help consumers get out of this debt trap.

• Objectively assess your current situation. Consumers who are consistently visiting payday lenders for cash advances need to take a look at their current financial situation and determine why they are constantly behind on their bills.

Ask yourself these four questions: What are my financial obligations each month? Where am I falling behind? Are my monthly expenses too high? What costs can I eliminate to help myself out financially? By knowing and understanding your full financial picture, you can determine how you can make changes to positively affect your financial outlook and eliminate the need for relying on payday loans.

• Identify bad habits. It’s not always just plain bad luck that keeps consumers behind financially. Sometimes it’s the bad habits that keep us behind the financial 8-ball. Overspending, compulsive shopping, poor budgeting and even gambling are all triggers to debt accumulation.

• Create a budget. A personal budget is a consumer’s financial air supply. Without it, it’s very difficult to keep track of expenses, monitor spending and determine the best way to allocate monthly income. Living a haphazard financial lifestyle is what gets many consumers into trouble and forces them to apply for fast payday loans. Creating a budget doesn’t have to be difficult - start by documenting regular monthly expenses such as rent/mortgage, utility bills, car payments, etc.

Other items to track include credit card payments, grocery bills, and monthly savings. Once you’ve determined what monthly expenses do not change, you can then figure out how much you can afford for those that do fluctuate, such as groceries, gas and clothing.

• Contact your creditors. If you are behind on credit card payments, or even mortgage, rent or car payments, contact your creditors to inform them of your situation. Many will offer contingencies until you get back on your feet. By alerting them of financial hardship, you can possibly avoid missed or late payments.

• Consider obtaining additional income. For some consumers, identifying debt warning signs and creating a budget will only go so far. They simply need additional income to help make ends meet, even if just temporarily. Consider a second, part-time job for help with credit card bills, monthly expenses, or even to help boost savings. While it may require extra discipline, and maybe a little less sleep, it’s far more beneficial than taking out an expensive bad credit payday loan.

Consumer advocates strongly urged the Department of Defense Monday to make significant changes to proposed federal regulations to ensure that predatory fast payday advance lenders can no longer strip earnings from U.S. soldiers and their families.

As written, the regulations will leave loopholes large enough for payday, auto title and other predatory lenders to glide through, letting them gouge military borrowers without regard for a pending 36 percent interest rate cap, said the groups in a written response to the Pentagon’s request for public comments.

Congress passed the 36 percent cap on personal loans to military borrowers last fall after the Pentagon documented the devastating impact predatory lending is having on troop morale and combat readiness.

The law exempts only residential mortgages and loans to purchase personal property. Congress charged the Department of Defense with writing rules that would implement the cap and other financial protections for military borrowers included in the Military Lending Act, also known as the Talent/Nelson Amendment. But the consumer groups say the proposed rules leave many predatory products untouched.

“The Pentagon has worked hard to get protections in place before the date the law takes effect, and we appreciate their commitment. But these rules end up giving predatory lenders leave to raid the personal funds of the troops,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America (CFA). “This industry knows how to get around even the tightest of regulations. They will have no problem with the narrow definitions in the Pentagon’s proposed rules.”

In a statement introducing the proposed rules, the Pentagon acknowledged that faxless payday loans and similar products have two problems: exorbitant interest rates of 400 percent and higher, and a built-in structure that compels borrowers to renew an expensive short-term loan many times because they cannot afford to pay it off. The typical payday borrower pays back nearly $800 for a $325 loan.

Banks and other financial institutions argued strongly for an exemption for their products. The Pentagon’s rules limit the law to payday, auto title and refund anticipation loans, and defined those so narrowly that many similarly structured high-cost products already on the market will not be subject to the 36 percent cap. For example, the proposed rules would not stop any predatory car title lending in Virginia, and would not stop payday-like products by banks.

The proposed rules would not apply at all to military installment lenders who refinance loans at high fees with little benefit to the borrower. In the Pentagon’s own predatory instant cash loan lending report to Congress last year, they raised specific concerns about military installment lenders’ high interest rates and unfair terms.

In public comments on the proposed rules, CFA, the Center for Responsible Lending, the National Consumer Law Center, Consumers Union, and the National Association of Consumer Advocates called on the Pentagon to rewrite the rules to make the 36 percent cap meaningful by the October 1 implementation date if possible, and if not by that date, to take advantage of the extension Congress provided for in the Military Lending Act.

Congress gave the Pentagon nine months after the October 1 implementation to refine the rules.
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Utilities that direct customers to pay electricity, natural gas and telephone bills at bad credit payday loan stores make those customers targets for marketing of predatory loans, a National Consumer Law Center report has found.

“Utilities and Payday Lenders: Convenient Payments, Killer Loans,” a report released this week by NCLC, found more than 650 instances where payday cash advance lenders act as authorized bill payment agents for regulated utilities. Many of those payday lenders are now listed on utility websites.

“Consumers depend on utilities for survival,” said Rick Jurgens, an NCLC consumer advocate. “Utilities shouldn’t direct customers to pay bills where predatory loans are pitched, and regulators shouldn’t allow utilities to outsource services to such establishments.”

The report compared payment agents listed on 21 utility websites against a nationwide database of licensed instant cash loan lenders compiled by Steven Graves, a geography professor at California State University at Northridge.

Payday lenders make short-term loans at annual interest rates that start at 390 percent. When payment comes due, consumers frequently roll over short-term personal loans or take out multiple loans, trapping them in a vicious cycle of debt.

Searching for customers for ultra-high-cost consumer loans, hundreds of payday lenders have signed up to serve as official utility bill payment sites. Other providers of no fax payday loans act as “unauthorized” payment agents.

An estimated one in four utility customers - including many minorities, women and low-income customers - opt for in-person bill payment. Outsourcing has grown as utilities have sought to cut costs of bill payment services.

“Consumers paying utility bills in person to avoid disconnection should not be directed to high-cost payday lenders,” said Jean Ann Fox, director of consumer protection for Consumer Federation of America. “Utilities should not contribute to the payday loan debt trap.”

Payday advance lending has become a multibillion-dollar industry and is growing online, according to Stephens Inc., a Little Rock brokerage research firm. According to a recent report:

• 23,000: Stores and pawnshops that made payday loans last year.

• 1,650: Stores or pawnshops that specialized Texas payday loans.

• $5.65 billion: Volume of online payday loans handed out last year.

• $1.4 billion: Income made off online payday loans last year.

• Thirteen states don’t allow quick cash loans, and efforts are under way to change the laws to either expand availability or tighten restrictions. Some examples:

- Georgia: The state is considering legislation to once again allowing payday lenders, according to Mary Jackson, a Cash America vice president. She said that many Georgians drive to nearby states to get payday loans and that that demonstrates a demand for the personal loans.

- North Carolina: Payday lenders left the state in 2005 after an adverse ruling by the state’s banking commissioner. Jackson said the strong influence of consumer groups there would likely keep it unfriendly territory for the industry.

- Oregon: Bad credit payday loans under $50,000 are capped at a 36 percent APR.

- Virginia: Efforts to cap payday loans at 72 percent failed last year.

- Arizona, Utah and Wisconsin: Municipalities might use zoning restrictions to limit the number of cash advance payday loan stores.

Illegal immigrants could fall prey to loan sharks and other unscrupulous quick payday loan lenders if they have to pay $5,000 in fines and thousands more in fees and back taxes as required under the immigration reform measure now before Congress, some advocates are warning.

Many immigrants work low-wage jobs and have virtually no assets. As a result, they often have poor credit and are forced to borrow on the street from no fax payday advance stores.

“We’re real concerned about the potential for fraud,” said Beatriz Ibarra, who studies Hispanic finances for the National Council of La Raza, the nation’s largest Hispanic advocacy group and a tepid supporter of the draft legislation. “They’ll find a way to pay, but how?”

Some say the measure also could lead to abuse by employers, who could offer to pay employees’ fines in return for repayment arrangements that could be difficult to satisfy, leading to what would amount to indentured servitude. However, advocates and other experts say that is unlikely, because most employers probably wouldn’t find that sort of arrangement worth the cost and risk.

It is not exactly clear how much time the immigrants would have to pay the fines and fees to achieve legal status and eventually obtain a green card, which confers permanent residency. But because of the backlog of green card applications, immigrants may have up to eight years to come up with the money.

“It’s a lot of money, but if they gave us the opportunity, we’ll see how we can get it,” said a young immigrant mother of a 2-year-old U.S.-born daughter, speaking on condition of anonymity for fear of deportation.

The native of Guerrero, Mexico, said she has no idea how she would get the money — which could amount to $3,000 for the initial visa application and $4,000 plus back taxes for a green card. However, she said she is confident she would manage, even though she only makes minimum wage working at a Mexican grocery in Georgia and could conceivably be in need of payday loans.

To make it across the border, many illegal immigrants pay thousands of dollars to smugglers, who sometimes threaten them with death if they don’t pay their debts. Then, many make low wages working in agriculture, construction and the hotel and restaurant industry. Out of that, they often send money back home to support their families. And because they are illegal, they tend to distrust banks.

“If you have a family of four or five, it’s going to add up to thousands of dollars, and I just can’t imagine anyone having that amount of money stored in a shoebox — so someone will come up with a lending scheme that will be close to usury,” said Robert Moser, deputy director of Catholic Charities for the Diocese of San Diego.

The Pew Hispanic Center reported last spring that the average weekly earnings for illegal immigrant males who arrived between 2000 and 2005 were around $480, and about $100 more for those who arrived before 2000.

About half of Hispanic immigrants have no checking or savings accounts, and those who have credit cards often pay exorbitant fees and have difficulty managing their debt, according to a study co-authored by Ibarra. Hence, the possibility of cash loans.

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The national trade group for payday advance lenders has called on its members nationwide who make loans over the Internet to comply with all state laws and to be licensed in each state in which they do business.

The effort by the Community Financial Services Association announced Tuesday, if complied with by all payday lenders, could put an end to a lot of illegal short-term loans now available online to New Yorkers. That’s because New York state already bans such loans through its interest rate cap and other restrictions, and no payday lender is licensed to operate stores in the state.

However, consumers have been able to get high-cost fast cash loans online from a variety of sources, which a spokeswoman for the trade group said was legal. Now, its members would be prohibited from making loans that violate state law. Violators risk losing their membership in the industry’s only trade group.

“With this new change in best practice, our members are unlikely to lend to someone who has a New York address due to the regulatory environment,” said CFSA spokeswoman Lyndsey Medsker. “We want to be responsible. We want to protect consumers. With this new best practice, we won’t lend to people whose state regulations don’t allow it.”

But CFSA, whose members are all U.S.-based, represents only about 60 percent of the storefront easy payday loan locations in the country. And many of the online lenders are actually based offshore in countries such as Costa Rica, and don’t necessarily follow state or federal laws.

“Someone who lives in New York can still go online and get a loan,” Medsker said. “They’re just getting it from someone who isn’t necessarily following any rules.”

Consumer advocates, who denounce online payday loans as abusive and predatory, and have sought to prohibit them nationwide, downplayed the new rule’s significance.

“Once again, CFSA’s ‘Best Practice’ is to comply with state laws,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America. “Operating within the law is the least you should expect, not a ‘best practice.’ ”

Payday loans are short-term, small-dollar loans of about two weeks made against an upcoming paycheck or postdated check, or with authorization to take the repayment electronically from the consumer’s checking account. The personal loans, typically for amounts ranging from $100 to $500, carry finance charges of $15 to $30 over the two weeks, which equals an annual interest rate of 390 percent to 780 percent.

The loans are made by storefront lenders, check cashers and pawn shops, and are also available through toll-free numbers or the Internet. According to Little Rock, Ark.-based investment bank Stephens Inc., which has researched the industry for years, there are an estimated 24,200 U.S. stores.

In all, Stephens reports, the cash advance loan industry generates $47 billion in annual fees, including $5.65 billion — or 14 percent — online.

New York criminal law prohibits charging interest of more than 25 percent annually, and its civil banking law restricts unlicensed lenders further to just 16 percent. The state also bars check cashers from making loans and from accepting post-dated checks. That has effectively kept the payday lending industry out, as the most a store could legally charge is 95 cents for every $100 loaned.

Texas Attorney General Greg Abbott has sued EZCorp Inc., an Austin-based payday loan company and pawn shop operator, accusing it of dumping “hundreds of documents containing sensitive personal identifying information” into publicly accessible trash bins.

In a lawsuit filed Tuesday in state District Court in Bexar County, Abbott’s office said the documents, which include customers’ applications for cash loans or pawn services, were dumped outside EZCorp stores in Austin, San Antonio, Lubbock, Houston and five cities in the Rio Grande Valley.

The documents include applications for loans that require a customer to list his or her address, Social Security number, bank account numbers, date of birth and driver’s license number.

“Identity theft is one of the fastest-growing crimes in the United States,” Abbott said in a statement. “Texans expect their personal information to remain confidential.”

EZCorp “failed to shred, erase or otherwise make the sensitive personal information unreadable,” the state’s lawsuit says. “Instead, records were placed in trash dumpsters that were readily accessible to the public.”

The state is seeking potentially tens of millions of dollars in fines under laws governing deceptive trade practices, identify theft and the regulation of so-called payday cash advance lenders such as EZCorp.

The suit also asks the court to order EZCorp to implement a program to protect customer information.

The no credit check payday loan company has strong privacy policies, but will work to improve them, CEO Joseph Rotunda said in a statement.

“EZCorp has strong identity protection policies and systems in place, including a state-of-the-art ‘paperless’ document system, written document retention policies, and regular audits to ensure compliance,” Rotunda said.

He said the company “invested additional resources in technology and information security” after Texas passed an identity-theft law in 2005.

Rotunda said “the issues cited by the attorney general appear to be the result of human error. We are committed to working closely” with Abbott’s office on the issues.

Rotunda’s statement didn’t address the possible fines to be assessed to this personal cash loan operation.

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Consumers seeking online payday loans will have an unprecedented level of protection from companies belonging to the Community Financial Services Association of America (CFSA), the national trade association representing responsible payday lenders.

A new Internet Lending Best Practice requires CFSA members to follow state laws governing cash loans and to be licensed in each state they do business.

As part of the strengthening of CFSA’s mandatory membership requirements, all members must adhere to the new Internet Lending Best Practice:

Internet Lending. A member that offers payday advances through the
Internet shall be licensed in each state where its [payday advance loans]
customers reside and shall comply with the disclosure, rollover, rate, and
other requirements imposed by each such state, unless such state does not
require the lender to be licensed or to comply with such provisions, or
the state licensing requirements and other applicable laws are preempted
by federal law.

“Appropriate state regulations provide strong protections for consumers, while ensuring continued access to choices for short-term credit needs,” said Darrin Andersen, CFSA president. “That same principle should apply in cyberspace. Customers who choose to get a payday advance online should not forfeit any of the protections they would have at a store-front lender.

By requiring CFSA members to provide Internet loans in accordance with the laws of the state in which the customer resides, we are taking an important step toward ensuring that this service is both convenient and safe for consumers.”

The introduction of this new Internet Best Practice is yet another step in CFSA’s continuing effort to strengthen consumer protections against no fax cash advance loans. Earlier this year, CFSA announced significant changes to their Best Practices, including:

• Offering bad credit payday loan customers the option of an Extended Payment Plan if they cannot repay their loan when due
• Placing a “Customer Notice” on all CFSA member-company advertising and marketing materials
• Banning advertising that promotes the payday advance service for frivolous purposes
• Requiring CFSA members to prominently display the CFSA seal to help customers identify responsible providers that adhere to these and other CFSA Best Practices

Advance America Cash Advance Centers Inc. reported increased revenues for the first quarter of 2007 on Wednesday, representing the payday loan company’s ninth consecutive quarter of revenue growth since it became public in December 2004.

During the first quarter, total revenues increased 10.5 percent to $168.1 million compared to $152.2 million for the same period in 2006.

“We believe the operating results of the first quarter reflect the overall strength of our company and its ongoing commitment to provide shareholders with consistent bottom-line return,” said Ken Compton, president and CEO of Advance America.

The payday cash advance company reported elevated revenues of 7.6 percent in same-center sales over locations that operated during the same period last year, excluding those that closed.

Advance America operated 200 more centers nationwide than it did in 2006, which added $6 million of revenue in the first quarter.

“We feel great about the increase (in revenues),” said John Hill, CFO for Advance America. “It shows tremendous strength in the market and a growing demand for our product.”

The quick cash advance company opened 39 new centers in the first quarter and expanded its operations into a 37th state, Utah. There are 2,871 locations in the U.S.

It was an uneventful first quarter regarding legislation against the industry of pay day loans.

A bill has gone before the U.S. Senate Banking and Finance Committee that would set a limit of five payday loans per customer a year.

Jamie Fulmer, director of investor relations with Advance America, said that his company has said all along that it supports reasonable regulation of the industry that protects the consumer, but it considers the limit of instant cash loan transactions to be arbitrary.

“What about the customer that works off of commission and has to stretch out his loans to survive?” Fulmer said. “This would just push the consumer into other products that are more costly or are unsafe because they have no regulations. There is no limit on the amount of credit cards you can have in your wallet.”

Cheque Centre Group, which offers instant check cashing and personal loans, is looking to double the size of its business following a 40 million pound funding deal with a U.S. counterpart.

The Edinburgh-based firm, which has 105 branches across the UK, is looking to open 100 more by the end of this year after clinching a deal with Check ‘n Go.

The payday loan company, which offers customers instant check cashing as well as payday loans and foreign currency exchange, said it wanted to take on an extra 250 staff members to take its total to more than 600. It also plans to invest in new technology across its network of branches.

Managing director Colin Mitchell, who founded the payday advance loan business in 1996, said:

“Our growth to date has been solid and steady. But now, with significant financial backing from our new parent company, it will be a very exciting period of intensive and rapid expansion.”

He added that Cheque Centre’s high street locations would prove key in a market where banks are moving further away from their traditional local branch networks.

The deal is the only UK venture for Check ‘n Go, which has 1,600 fast cash loan branches in the U.S.