Short-term payday loans do a booming business in N.H.

May 14, 2006 - Nashua, New Hampshire

About once a month, Leah Gabriel makes a trip to the Advance America branch on Main Street to take out a "payday" loan.

"If I have a car problem, it helps me out, or if I need extra cash," said the Nashua woman, who visited the local branch of the nation's largest cash-advance chain Thursday afternoon with her son and daughter in tow.

But the situation is much different for one Nashua man who earns $11 an hour and uses payday loans to cover his living expenses. The maintenance man, who asked that his name not be used, also visited the Advance America branch at 300 Main St. on Thursday. He said he has visited the payday lending center every two weeks for three years.

Payday loans are short-term, usually two-week, loans with high interest rates. New Hampshire is the only state in New England that doesn't cap interest rates, which can reach upwards of 500 percent.

"It's like a drug now," said the middle-aged man, holding an empty pay envelope. "You can't get out of it."

He estimates his payday loans have cost him $2,600 a year in interest for three years. For instance, when he borrows $500 against his next paycheck, he has to write a check to the lender for $600 (the $500 he borrowed, plus $100 interest). He pays the 521 percent annual percentage rate interest because he says it's his only option.

His story isn't uncommon.

More than 5 million borrowers across the country get on the payday loan treadmill each year, according to the Annie E. Casey Foundation, a private charitable organization based in Baltimore.

It's an industry that's growing rapidly in New Hampshire. Last year alone, more than 100,000 payday loans were written in the state for an average loan of about $360, according to the New Hampshire Banking Department.

Today, six companies operate 30 payday loan storefronts throughout the state, according to the Banking Department. The number of payday lending centers has increased from 24 in 2004.

Nationally, about 22,000 outlets made loans totaling $40 billion and generated more than $6 billion in interest and fees from consumers in 2004, according to the Consumer Federation of America.

"It's a debt trap," said Jonathan Baird, managing attorney of the Claremont office of New Hampshire Legal Assistance. "People who need short-term money get hooked into where they end up owing more and more money and they never escape."

Baird said part of the problem is that consumers aren't well educated on payday lending. "There's a lack of public awareness about the issues," he said.

Quick and easy

Advance America--famous for its eye-catching yellow signs touting "quick, easy, hassle free" loans--has 17 storefronts in the state and 2,640 centers nationwide.

Payday lenders such as Advance America and Check 'n Go give borrowers cash--usually averaging $350--in exchange for a post-dated personal check that they hold until the consumer's next payday. At the end of that next payday, either the check is deposited or the borrower returns with cash to reclaim the check. A person needs only a checking account and a source of income to take out a payday loan. Credit checks are not required.

These businesses say they provide a necessary service to people who need small loans for emergencies; they say calculating the interest rates on an annual percentage basis is misleading because the loans are typically for two weeks or less.

But consumer advocacy groups say they are "money traps" targeted at vulnerable consumers.

"They prey on low-income people," said Baird.

Not so, said Jamie Fulmer, director of investor relations for Advance America. He said the median income of an Advance America's customer nationwide is $40,000 a year. Just under half of Advance America's customers own their own home, and 90 percent have at least a high school diploma, Fulmer said.

John Rabenold, spokesperson for Check 'n Go, which is opening a storefront on Amherst Street in the near future, said the average income of its customers is in the mid to high $30,000 range. He said two-thirds of the company's customers use its cash-advance service for emergencies, while the other third use it for disposable income.

"I'd rather do this than bounce a check," said a 32-year-old female Advance America customer paying a visit to the Nashua branch on Thursday.

The woman, who works with autistic children in the Nashua School District, was paying back the $300 she borrowed the previous pay period.

"I think it's a good thing if you need it at the time," said the woman, who asked that her name not be used.

In 2004, 89,706 loans worth about $31.8 million were written in New Hampshire, according to the state Banking Department. The average loan was for $354.85. The 114,565 loans written in the state last year--a 28 percent increase--were for about $41.4 million, an average of $361.78 per loan.

No limit

Payday lenders started doing business in New Hampshire six years ago when state lawmakers removed the interest rate cap on small loans. There were no payday lenders in the state prior to 2000, according to the Consumer Federation of America.

While no fees or finance charges are allowed, there is no limit to the interest that can be charged on payday loans in New Hampshire.

Lenders such as Advance America say their product helps avoid borrowers from writing a bad check or going into overdraft protection.

If someone never pays the cash-advance lender back, most write it off as bad debt if several attempts to collect the money fail.

"Generally, we just call them and ask them when they plan to pay it back," said Check 'n Go's Rabenold.

For loans that don't get paid back, "We'd deposit the check and try to collect on the check they'd given us," Rabenold said.

Jim Bouley of Concord, senior director of government affairs from Advance America, said about 98 percent of Advance America customers pay off their loan by the due date. Those who don't pay it off can't come back and get another loan.

Failure to repay loans leads to bounced check fees from the lender and the borrower's bank, negative credit ratings on credit reports, possible loss of bank account and difficulty in opening a new bank account, according to the CFA.

In 2003, the New Hampshire Legislature adopted regulations that limited the amount of a payday loan to no more than $500 at any one time.

The minimum term of a payday loan in New Hampshire is seven days, the maximum term is 30 days and extensions aren't allowed.

While extensions aren't legal in New Hampshire, that doesn't matter much, according to Miriam Shark, senior associate at the Annie E. Casey Foundation.

"People go down the street (to another lender)," she said.

But Check 'n Go does a check to make sure the customer doesn't have a loan out with another lender, Rabenold said.

"We don't know how many people are taking out multiple loans," said Melissa Gallagher, research associate at the Children's Alliance of New Hampshire, which studied the issue as part of its family education efforts.

Over the border in Massachusetts, there are no payday lenders. There, small loans have always been capped at a 23 percent annual rate and no more than a $20 annual fee, said David Cotney, chief operating officer at the Massachusetts Division of Banks.

"The large payday lenders have said that doesn't fit their business model," Cotney said.

As a result, some people are crossing the border into New Hampshire to take out payday loans, Rabenold acknowledged.

"You can't tell me that paying $60 in a bounced check is better than paying 20 bucks per $100," Rabenold said of Massachusetts residents who come here to take out payday loans.

Rabenold noted New Hampshire government is in the fee business, too.

"If you bounce a check for a $35 fishing license," Rabenold said, "you'll pay $25 to the state, $8 to the bank, the state's APR, assuming a 14-day term, would be 1,862 (percent), which is far higher than the 521 that's disclosed in the payday product."

In 2006, two bills related to payday loans were introduced during the New Hampshire legislative session--one in the House and one in the Senate.

House Bill 1528 would have commissioned a study of consumer protection laws in New Hampshire, but a House Commerce Committee subcommittee found that bill "inexpedient to legislate."

Senate Bill 331 called for an interest rate cap of 100 percent on certain small loans. That bill was amended and then tabled in the Senate.

"The bill is stalled there," said Sen. Joe Foster, D-Nashua, one of the bill's sponsors.

And if consumers have problems with the local payday lenders, they aren't doing much about it. According to the state Banking Department, no written consumer complaints regarding payday loans were filed last year. People have called to complain, but didn't pursue it any further when they learned payday loads are not illegal, said Peter Hildreth, commissioner of the New Hampshire Banking Department.

However, payday lenders that operate over the Internet have posed problems for officials in New Hampshire and Massachusetts.

In Massachusetts, where payday lenders are shut out by fee restrictions, officials are going after lenders trying to operate over the Internet. Last year, the Bay State sent out 95 cease-and-desist letters to Internet-based payday lenders.

New Hampshire has gone after nhcash.com, a Bedford-based online cash-advance company that's accused of rolling over customers' loans, said Hildreth.

The state issued a cease-and-desist order against that company, which is appealing to Superior Court.

Use or abuse?

People have strong opinions about payday loans.

"When I think about payday lending, I just get angry," said Lewis Feldstein, president of the New Hampshire Charitable Foundation. "I want to say to people, 'What's not clear about how wrong this is?' "

"I won't say it's a trap," said the maintenance man from Nashua. "But it's something you don't want to do."

But the payday loan companies disagree with those assessments. They say they serve hardworking Americans who, for whatever reason, choose to take an advance on their next paycheck.

"The majority of our customers don't abuse the product," Advance America's Fulmer said. "Independent research suggests that about 70 percent use it once a month or less nationwide."

Fulmer said Advance America tries to promote responsible use of its product. In New Hampshire, each customer gets a brochure from the Consumer Financial Services Foundation, a trade group for payday lenders.

"If consumers didn't have the payday lending alternative, in fact, it would makes matters worse for millions of Americans," Fulmer said, pointing out that some people might not be able to pay their bills on time.

"Without the payday option, what option do they have?" Fulmer said. "Maxing out credit cards? Writing bad checks?"

Kerry York, executive director of operations in the Concord office of the Consumer Credit Counseling Service of New Hampshire and Vermont, has counseled only a handful of clients indebted with payday loans.

"It can get out of control, same with overuse of credit," York said.

York recently worked with a Merrimack man on a fixed Social Security disability income. He had taken out a $300 payday loan to pay for food and gas, but when the time came to pay it back, he had already committed that check to other obligations.

"When the money was going to be withdrawn for the payday loan, the money wasn't there," York said.

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The Telegraph, Karen Spiller, Telegraph Staff

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Short-term payday loans do a booming business in N.H.

May 14, 2006 - Nashua, New Hampshire

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