In 1999, all over Pennsylvania, thousands of people strapped for cash lined up at the storefront offices of a short-term loan company.

They got money, fast, from a bank called Crusader, headed by a self-made millionaire named Tom Knox.

The cash loans averaged $250 apiece. But the interest was so steep that community activists cried foul, and federal regulators zeroed in on the bank. Eighteen months after it began making these so-called payday loans, Crusader, under pressure from regulators, agreed to stop.

Now, the man who ran Crusader is running for mayor of Philadelphia, and his wealth has transformed the race.

Knox’s role in the much-criticized payday advance lending industry is only a brief chapter in his career - “a very small part” of his earnings, as his wife, who was a Crusader director, put it. Knox, who was a millionaire before he bought Crusader, has made his rags-to-riches life story the center of his campaign.

But as polls show Knox surging into second place in the five-way Democratic field, his rivals are already hinting that they’ll make an issue of “predatory lending,” as candidate U.S. Rep. Bob Brady said last month, and Knox is facing questions about his past involvement with no faxing payday loans.

Knox, who served briefly as a $1-a-year deputy mayor under Mayor Ed Rendell in the early 1990s, said in an interview last week that he had no regrets about having gotten into payday lending in 1999 and 2000.

But the longtime insurance executive also acknowledged that it was not one of his best business decisions - and said he “did the right thing” by getting out of fast payday advance lending.

Knox acknowledged that federal thrift regulators - “they’re like Gestapo” - had pushed Crusader to stop this practice. He said the bank wanted out, having tired of criticisms from “social groups, do-gooder types” and federal regulators.

“They wanted us out of the business. We wanted to extricate ourselves,” Knox said. “We got out.”

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Drew Wheeler said he depends on payday lending businesses to cash his checks but would never borrow money from the stores.

“I think they scam you here,” he said to The East Valley Tribune outside one of the dozens of payday lending stores that have shot up in west Mesa.

Although the 21-year-old Tempe resident doesn’t take out the short-term loans offered there, an increasing number of people in Arizona and elsewhere are turning to payday lenders. Many times, borrowers pay more in interest than the actual bad credit cash loan amount.

Now, some state lawmakers are looking to reform the practice that they see as legalized loan-sharking that preys upon Arizona’s low-income families.

Currently, 98 savings account payday loan lending companies operate 720 branches throughout the state, said Bruce Tunell, deputy supervisor for the Department of Financial Institutions. The number of branches is up from 615 sites 18 months ago.

Nationwide, the industry has exploded into a $28 billion-a-year business, ac- cording to the Center for Responsible Lending.

On Monday, the House Committee of Financial Institutions will hear a bill sponsored by Rep. Marian McClure, R-Tucson, that could change how the industry does business in the state.

A new registry that would record and track every payday advance loan in the state would be the most drastic change.

The list would be managed by the Arizona Department of Financial Institutions and prevent Arizonans and lenders from breaking the law, Mc-Clure said.

Borrowers who take out multiple high interest loans run the risk of falling into financial quicksand, McClure said. Although state law limits customers to taking out one loan at a time, she said it’s nearly impossible to track. And therefore, people go from one place to another.

“It’s a horrible cycle,” she said.

McClure also has proposed limiting the amount of interest that faxless cash advance lenders can charge. She said she has talked to people who have ended up paying 1,000 percent interest on a one-month loan.

Still, McClure said there could be a legitimate place for payday lending stores, which can help people make it through a short-term financial crisis, such as paying rent or buying groceries.

“I wanted to try to eliminate payday lending this year,” she said. “But there’s a part of me that says there’s a legitimate need.”

And with the proliferation of lenders online, she thinks it might be better to have stores operating in Arizona where the state can regulate them.

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Supporters of a proposal to severely restrict New Mexico payday loans are urging a compromise between two competing proposals to regulate the industry.

Lt. Gov. Diane Denish, who supports a payday loan measure by Sen. Bernadette Sanchez, D-Albuquerque, on Wednesday suggested sitting down with the sponsor of the other proposal, Rep. Patricia Lundstrom, D-Gallup.

Denish said Lundstrom’s bill “doesn’t get us where we want to be.”

Lundstrom _ whose proposal to regulate quick cash loans died in a filibuster on the last day of the 2006 session - said she is willing to work with anyone, but said no one had contacted her.

“It’s just political posturing,” she said.

Payday lenders in New Mexico typically charge annual interest rates of 390 percent to 780 percent, a legislative financial analyst said.

Borrowers can renew a no credit check payday loan repeatedly by paying only the interest at the end of a two-week term - meaning costs can build up and exceed the amount borrowed. When the loan rollover limit is reached, borrowers sometimes turn to another payday lender to borrow to pay off the first.

People using payday loans “are on a treadmill that you never get off,” said Don Kidd, a former state senator and president of Western Commerce Bank in Carlsbad.

“There are hundreds of millions of dollars of wealth being stripped out of New Mexico” via payday loans, said Ben Heyward, president of First Financial Credit Union in Albuquerque.

The industry said it loans money to people who don’t qualify for bank loans.

State officials have estimated 400,000 high-interest payday loans totaling $140 million originated in New Mexico last year.

Sanchez has proposed capping rates on faxless payday loans at 36 percent, which matches a federal law that goes into effect Oct. 1 that would limit interest rates to 36 percent for members of the military.
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A few times each month, the steady flow of traffic heading to Jerry Schooley’s payday cash advance lending store swells into a rush.

Payday loan lenders say thousands of Georgians drive to border towns like Anderson, S.C., Tallahassee, Fla. and Chattanooga each month because Georgia’s ban on payday lending has left an aching void in the short-term, bad credit payday loan market.Three years after the state’s lawmakers outlawed payday loans, lenders are now making their strongest effort yet to repeal the ban and replace it with a new system designed to regulate the high-interest loans.

Their solution lies in a thick proposal introduced by a few Republicans and a key Democrat.

The legislation would set up a system of “cash advances,” which are two-week loans prohibited by law from accruing interest from month to month. Under the plan, operators would charge a service fee of $15 per every $100 borrowed, up to 25 percent of a customer’s monthly income. And lenders who break the law would be fined $1,000 each day for each violation.

“People are driving 30 to 45 minutes. They tell us banks won’t lend a few hundred dollars,” said Lauren Hosie, director of legal affairs for Cleveland, Tenn.-based Check Into Cash, the nation’s third largest payday lender. “There’s a need that still hasn’t been met if people are crossing the border.”

The proposal has been met by stiff opposition from critics who say banning easy payday loan lending was one of the most aggressive - and progressive - acts that the Georgia Legislature has ever taken.

One of the proposal’s most vocal opponents is state Insurance Commissioner John Oxendine, a Republican who would oversee the financiers if the payday lending ban is lifted. He called the plan to repeal the ban “anti-consumer” and said there’s a dedicated, if small, number of legal lenders that specialize in loaning several hundred dollars.

“I’m not saying the companies pushing the bill are bad,” Oxendine said. “The key is, you have to have legislation written to the lowest denominator. You have to assume there are bad people out there.”

Consumer advocacy groups are also fighting the effort to repeal the fast cash loan ban. AARP lobbyist Kathy Floyd warned that it would be “letting the fox back in the hen house.” And Joe Mulholland, the south Georgia district attorney who used the law to prosecute lenders in the city of Bainbridge, worried that legislators could soon erase the “positive change in our communities.”

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Consistent with most other payday lenders’ results, tiny QC Holdings saw flat expenses atop higher revenues lead to wider profit margins. QC Holdings is a pure-play lender in a field that often involves a mix of fast payday loans, pawn shops, and most recently used-car dealerships.

Competing against industry giant Advance America, the company still grew quarterly revenues 16%, to $48.7 million, on higher volumes of loans written, including the addition of 51 branches it acquired in South Carolina back in December.

It originated approximately $291 million of payday loans during Q4, a 7% increase over the $271 million worth it originated last year, according to The Motley Fool.

At the same time, branch operating expenses remained flat year over year, despite the increased number of stores. That suggests an improved and more efficient operating structure. The longer no fax payday loan stores stay open, the more profitable they become. It falls right in line with CEO Don Early’s prediction last quarter that investors should expect higher revenues and consistent costs.

It was a hard lesson to learn for QC Holdings.

The payday loan company initially expanded too far, too fast, and suffered mightily for it. Now, with experience under its belt, the company has found a consistent formula. It’s expanding at a less torrid pace, only expecting to open 20 to 30 new branches in 2007. Nonetheless, it’s seizing opportunities when they arise, such as its $16.2 million acquisition of South Carolina branches from privately held Express Check Advance.

Along with 46 new branches it opened in the last quarter, those additions have already contributed $3 million in revenues.

QC is also closing down 35 branches that cost the company $2.4 million in losses in 2006, undoubtedly opened in the frenzy of new fast payday advance stores intended to increase its footprint early on.

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A bill to severely limit interest rates charged for payday loans overwhelmingly passed the Arkansas House of Representatives on Thursday, marking the biggest threat to the practice in the eight years that it has been legal in the state.

The vote was 90-3, with two lawmakers voting present. Now the bill goes to the Senate.

“I think we’re going to have a job to do in the Senate,” said Rep. David Johnson, D-Little Rock, the primary sponsor of the bill. “We’ll be starting over again; we’re halfway done. I’m excited and happy about the result, and I hope that gives us some momentum going into the Senate.”

Interest on instant cash loans can amount to several hundred percent on an annual basis.

The vote was no surprise, said Bradley Rogers of Stuttgart, president of the Arkansas Financial Services Association, an organization of payday lenders.

“As many sponsors as they had for the bill, we expected that,” Rogers said.

If the bill passes in the Senate and is signed by Gov. Mike Beebe, it will become law immediately, according to a provision in the bill.

Beebe will sign the faxless payday advance bill if it reaches his desk, said Matt De-Cample, Beebe’s spokesman.

“As far as this first step [of passing in the House ], this is a good move to protect some of our poorest citizens,” DeCample said.

An Arkansas payday loan works like this: A customer writes a check for $ 400, for example, and receives $ 350 in cash. The lender normally keeps the check for two weeks without cashing it.

A $ 50 charge on a $ 350 loan for 14 days is the equivalent of 371 percent in annual interest. If the borrower cannot pay the loan in two weeks, he writes another check, pays another fee and the loan is extended for two more weeks. The process often continues for months.

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About one in eight low-income Oregonians pays a fee to have payroll or other checks cashed, according to a new analysis by a public interest research group and printed in The Oregonian.

The analysis, by the progressive Oregon Center for Public Policy, concludes that about 100,000 Oregon adults with incomes of less than $30,000 paid a fee to cash a check in the year just before a survey taken last summer.

“The new data indicate the check-cashing fees are a drain on the incomes of many low-income Oregonians,” said Michael Leachman, a policy analyst with the center. National data indicate that nine out of 10 customers visit cash advance services at least once a month, he said.

The analysis was done by looking at responses on the Oregon Population Survey, a biennial questionnaire paid for by state agencies to take a snapshot of Oregonians’ incomes, education, jobs and purchasing habits, among other topics. Last year, the survey included six questions about Oregonians’ banking and lending habits.

About 4,500 households were surveyed; from that the Oregon Center for Public Policy extrapolated statewide estimates about use of payday advance lenders and check-cashing services.

The analysis comes at a point when several bills aimed at reining in the high rates charged by short-term lenders and check-cashing services are moving toward a vote in the Oregon House — probably next Thursday. One would restrict fees charged by check-cashing businesses, which are now unregulated.

Two others put out-of-state online payday loan lenders and companies that make car title loans under the same 36 percent interest rate cap imposed on in-state payday lenders last year in a special session of the Legislature. The center’s analysis found that 9 percent of payday loans are made over the Internet.

A fourth bill tries to prevent car title and payday lenders from escaping the interest restrictions by buying conventional consumer-lending licenses, which are not subject to the 36 percent cap. It would require Oregon payday loan lenders with conventional licenses to have 90 percent of their loans exceeding six months, and be approved by experienced underwriters.

Leachman said the public policy center analysis showed that residents in Crook, Deschutes and Jefferson counties in Central Oregon were most likely to pay to cash checks. Sixteen percent of all adults in those three counties in the survey reported paying personal cash loan fees.

Cory Streisinger, director of the Department of Consumer and Business Services, said the bills are needed to address the problem of short-term, high-interest loans in Oregon. Patty Wentz, spokeswoman for Our Oregon, said a blanket interest-rate cap is needed for all consumer lending companies.

Our Oregon is working on a bill that would extend the 36 percent cap to all retail payday advance loan lenders, except banks and credit unions.

Thirty-six percent is about twice the interest rate many consumers pay on their credit cards. On Wednesday, Attorney General Jay Nixon said that’s also as much as anyone should have to pay for a payday loan.

Payday loans are short-term and easy to get, and millions use them between paychecks, reports the St. Louis Post-Dispatch.

Nixon joined three legislators who are sponsoring bills to cap the interest on no fax payday loans at 36 percent. That’s the limit Congress set last year for military service members and spouses.

The average Missouri payday loan last year was $274, according to a survey by state regulators, while consumers paid an average of 422 percent annual interest on payday loans.

“Legal loan-sharking,” Nixon called it.

Critics say the numbers tell the story, noting that Missourians paid $317 million in fees and interest on savings account payday loans in 2005, second only to what Californians paid, according to a study by the Center for Responsible Lending.

Nixon says Missouri has no real limit on the interest. The state allows payday loan operators to renew loans six times — effectively allowing interest rates of up to 1,950 percent, Nixon and consumer groups calculate.

Unlike Missouri, Illinois bars renewals. Illinois limits the interest to $15.50 per $100.

Guaranteed payday loan operators see a different story in the numbers. The number of loans in the state was booming at 2.87 million last year, up from 2 million in 2003; the number of defaulted loans was 183,000, up from 124,461 in 2003, and the number of complaints remained low, according to the Missouri Division of Finance.

The number of loan operators increased from 912 in 2003 to 1,545 last year.

“People are very pleased with them,” said Randy Scherr, lobbyist for the United Payday Lenders of Missouri, an industry group. “If they were that unpopular, there wouldn’t be 2.8 million of these loans out there.”

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Led by a Wichita community action group, more than 200 people protested payday loans and car-title loans Tuesday in a loud rally in the Capitol rotunda.

Sunflower Community Action Coalition brought three busloads to the Statehouse to demand passage of strict regulations on short-term, high-interest loan agencies that have proliferated across the state.

Critics say the payday advances - at rates equivalent to annual percentages in the hundreds - are little more than a trap for poor people, who get caught up in an endless cycle of debt.

Cheers reverberated throughout the Capitol as Wichita-area lawmakers vowed to fight for tight regulation of the industry. The group spent the afternoon visiting lawmakers and other officials seeking support for their cause.

“We think having something like this will educate the legislators to do the right thing and not let money be the root of all evil,” said J.J. Selmon, one of the demonstration’s organizers.

Whitney Damron, a lobbyist for the no fax payday loan industry, said increased state control would prompt Kansans to go out of state or to the Internet for short-term loans - or bounce checks, which would cost them more and could lead to criminal prosecution.

Market demand for short-term, bad credit payday loans could be the saving grace for Arkansas’ payday lenders, but the industry likely will not escape the legislative session without enduring tougher regulations, a legislator said Tuesday.

“I have concerns that if we totally shut the payday lenders down that there will be a void that may be filled by some of the Internet payday lenders that may be more abusive and harder to regulate,” said Rep. Bruce Maloch, D-Magnolia, a banker and attorney.

Some lawmakers are looking at draft legislation that offers an alternative to House Bill 1036, which would cap interest rates for payday cash loans and make it a criminal offense to exceed the cap.

The House committee on Insurance and Commerce held a hearing on the issue last week and is scheduled to take up House Bill 1036 by Rep. David Johnson, D-Little Rock, again today.

Under consideration as alternatives are proposals to prevent lenders from harassing borrowers for payment and provide borrowers with more information about terms of the loans.

Opponents of no fax payday advance lending have said lenders target a demographic that does not always understand the terms of the loans. Many of the would-be regulations were proposed by the payday lending industry, its lobbyist, Don Tilton, said.

“Our coaltion would be totally against that,” said H.C. “Hank” Klein, founder of Arkansans Against Abusive Payday Lenders.

“All this talk of putting more teeth in the law is window dressing,” Klein said. “All we’re asking is the Legislature to pass a law to enforce the 17 percent limit in the constitution.”

Other proposals include restricting lenders’ access to areas near military bases and creating an extended pay plan that would not assess borrowers additional fees or interest if an easy payday loan was not paid back in the initially agreed upon time frame.

“If whatever we do leaves payday lenders in business, I think it would certainly add to our law to add some of those provisions,” Maloch said.

He suggested Johnson’s bill could be amended to include additional regulatory provisions, including one that would require that borrowers certify they have only one outstanding cash advance payday loan and that they wait 30 days before taking out another to stop any rollover problems that lead to debt traps.

Current regulations cap loan length and amount, require borrowers and employees to be informed of the regulations and prohibit borrowers from having more than one loan per store, among other things.

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