Borrowers keep returning for payday loans

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More disturbing to consumer groups is the growth in repeat borrowers. The state report found that the number of consumers receiving between two and 12 loans during the year rose 23 percent to about 288,700. Those receiving more than a dozen loans rose 19 percent to about 90,900.

The numbers of repeat borrowers are likely higher, because the commission doesn't count people who go to more than one payday lender during the same year.

Consumer groups have accused payday lenders of targeting low-income and military consumers by setting up offices in poor neighborhoods and near bases. But Jabo Covert, vice president of government relations for Check Into Cash Inc., disputes those claims.

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Covert says the company seeks well-trafficked and suburban locations. About 5 percent of Check Into Cash borrowers in Virginia are military, he said. In addition, a typical customer has an annual salary in the $30,000 to $40,000 range but is often in a two-income household.

And customers of the Cleveland, Tenn.-based company do not stick around forever, Covert said. They might take out several loans in a year, but most are gone after 18 months. Loan defaults, he added, are in the single digits.

But consumer advocates say the lenders attract customers partly because, unlike banks and credit unions, they move fast, ask few questions and don't run credit checks. The results, they say, can be disastrous.

Rusty Boleman, whose Richmond law firm represents debtors, says his clients tell stories of payday loans that "have them on their knees." In the last several years, he says, payday loans have grown to become one of the key drivers in his clients' bankruptcies.

"The argument I hear is that (the industry) is serving an underserved community," Boleman said. "No, it isn't. They're taking advantage of poor people. They're taking advantage of people who are desperate."

Most states have enacted legislation allowing payday lenders to charge fees that amount to triple-digit annual average interest rates and that can become unmanageable if borrowers take out repeated loans.

In Virginia, payday lenders are authorized by state law to lend as much as $500 and charge $15 per $100, with a minimum maturity of a week. On average, they charge an annual rate of 386 percent. Before the state passed the Payday Loan Act, they would have been subject to a 36 percent small-loan cap — at least ideally. The lenders circumvented that rule by working with out-of-state banks.

There have been similar problems in some states with usury caps or other regulations that prohibit payday lending at triple-digit interest rates. The industry has taken advantage of a loophole in federal banking rules permitting nationally chartered banks to export interest rates from their own states to payday partners in more strictly regulated states.

However, both sides are increasingly running into resistance from state and federal regulators. North Carolina, for instance, just finished kicking out payday lenders it says have been illegally operating in the state through the so-called "rent-a-charter" relationships. On the other end, federal regulators have taken action against several banks working with payday lenders.

In Virginia, consumer advocates have unsuccessfully lobbied against payday lending. This year, a state legislator, Delegate G. Glenn Oder, proposed increasing the minimum length of loans to 15 days and prohibiting loans to consumers with outstanding payday loans. Attempts to weaken the bill were blocked by lawmakers seeking stronger regulation, and the measure never left the statehouse.

"It's an uphill struggle once you have an industry entrenched in the state," said Jean Ann Fox, consumer protection director for the Consumer Federation of America.

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