'Payday' loans do booming business in N.H.

NASHUA, N.H. --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 recently 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 has visited the Advance America branch 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.

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.

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.

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 John Rabenold, spokesman for Check 'n Go. 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.