Middle-class people rarely hear about payday lending. Until recently, these loans were principally a danger to the working poor.

Now, payday lenders are setting up shop in the suburbs and on college campuses. Rightly used, they fill a niche that banking institutions don't. But they also promote a treadmill of debt that's a one-way walk to bankruptcy.

Payday loans are for people with jobs and checking accounts who suddenly need fast cash. CampusCash in Champaign, Ill., home of the University of Illinois, lends money even to students who don't have a job (repaying, I assume, with their allowance from home).

Typically, lenders provide $200 to $500 at any one time. The loans are granted for periods as short as one or two weeks, at fees of $15 to as much as $30 a pop. That translates into super-high interest rates.

As an example, assume you need $100 to tide yourself over until your next paycheck. At a payday lender, you can write a check for, say, $115, on your empty bank account. The lender holds the check and gives you $100 in cash.

Two weeks later, when you get paid, you can tell the lender to cash the check. Or you can redeem the check, giving the lender $115 in cash. You've paid 391 percent interest, at an annualized rate. With a $30 fee, you've paid 782 percent.

If you can't afford to cover the check, the lender ever helpful will roll over the loan for another week or two, at another $15 to $30 fee. Interest rates have been documented that exceed 2,000 percent, according to the Consumer Federation of America.

If you can't pay, you're often threatened with criminal prosecution for passing a bad check.

Why would people take payday loans?

"For emergency cash," says Abby Hans, chairman of the National Check Cashers Association in Hackensack, N.J. An example might be a person who has no savings and is maxed out on credit cards but who suddenly needs a $500 car repair or has to pay a doctor upfront.

A payday loan can help someone out of a tight spot, provided that he or she borrows only once. But the lenders work hard at turning new borrowers into repeat customers, paying fees again and again.

ACE America's Cash Express, which has 900 outlets in 30 states and the District of Columbia, even offers a gold "frequent user" card, and passes out prizes to people who borrow a lot.

A recent report on the industry by Stephens Inc., an investment firm in Little Rock, Ark., found the average customer earns $25,000 to $40,000 and borrows five to seven times a year. The lenders can earn a fat 48 percent return on their investment, suggesting that fees are indeed pretty high.

Jeff Evanson, an analyst for the brokerage firm Piper Jaffray in Minneapolis, says that one payday lender does 11 transactions a year with its established customers. Such a borrower could pay anywhere from $165 to $330 for a rolling $100 loan.

Hans says that it's better to take a payday loan than bounce a check, and the loan can cost a little less. But why assume that someone who's broke would deliberately pay a bill with a bad check?

Maybe he or she finds a way to get through the next two weeks. That's what people did before payday loans came into their lives.

Payday loans are typically made by check-cashing companies (6,000 strong and growing fast), pawnbrokers and some 2,000 stand-alone payday lenders, with names like Almost-A-Banc, Check N Go, Cash 'Til Payday and Cash-N-Dash.

Their growth has been spurred by a dearth of mainstream financial institutions in poorer neighborhoods, rising bank fees, mistrust of banks (especially among new immigrants), and bankers' lack of interest in small accounts. You can't borrow $500 at a bank, except through a credit card.

Charging exorbitant fees for small loans is what usury laws were supposed to stop "protecting the needy from the greedy," Jean Ann Fox of the Consumer Federation of America told my associate Dori Perrucci.

But lobbyists for the lenders are swarming over the statehouses, getting new laws passed to legalize their high fees. They've succeeded in 19 states and Washington, D.C. Says Fox, "In this case, the greedy have the financial wherewithal to effectively lobby state legislatures."

(In California, a bill has been introduced to drastically reduce the fee a payday lender can charge, but lobbyists for the industry have launched an aggressive campaign against it.)

There are some alternatives to payday loans: loans from friends, installment payments, payment plans from utility companies, credit counseling. Anything, to avoid getting trapped with serial fees, which complicate an already prevalent problem that finds the poor paying more than the middle class for almost every financial service you can think of.

That's because the poor either lack access to banks, mistrust the banks they see or can't afford the minimum deposits. Some 12 million households in the United States do without accounts. Instead they patronize "fringe banks" such as check-cashing stores or lenders who advance small sums against future paychecks.

Real banks could address this growing financial apartheid by designing services for people living on modest paychecks. A few banks do, but most are paying no attention.

For community groups in lower-income neighborhoods, banking ought to be the next frontier. These activists worked long and hard to bring more mortgage money to their constituents. Better financial services should be possible, too.

Wells Fargo Bank, based in San Francisco, makes payday loans to California customers. These are very small loans, for people of modest means who suddenly find themselves in a tight financial spot. Maybe their car breaks down or they need medical treatment.

Borrowers have to be Wells Fargo customers, with paychecks, government checks or other regular deposits wired directly to their bank accounts. As long as they've deposited at least $100 and are good credit risks, they can borrow up to half the deposit with a maximum loan of $200.

They access the loan by telephone or ATM. It's repaid automatically, from the next deposit to reach the bank. The price is right. Wells Fargo charges just $1 per $20 borrowed, or $5 per $100.

Los Angeles-based Union Bank offers a broader banking program called Cash & Save. So far, it has opened 15 outlets some in bank branches, some in supermarkets, one next to a Laundromat and Burger King to deliver most of the services needed by the unbanked.

Prices are lower than those the check-cashers typically charge.

"When we come into a community, we force prices at check cashers to drop," says Yolanda Brown, Union's Cash & Save division manager.

Union also offers services that check cashers don't: a no-fee checking account that can be opened with just $1; a savings account you can start with just $10 plus $25 a month; financial counseling; and a secured MasterCard.

To get a secured card, customers put $350 into a savings account. That lets them charge purchases worth up to $350. By paying on time, they build a good credit history something they don't get from payday loans.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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