As economy falls, worries rise about people using payday loans

TOPEKA, Kan. — Billie Kroeker and her husband once chased easy payday loans with more loans. They fell into bankruptcy when their financial hole became too deep.

Now, she and some consumer advocates worry that more Americans will have similar experiences because of the sour economy.

"There is a lot more to it and people don't realize. You think you can pay that $15 in two weeks. If something happens, you can't pay it back," said Kroeker, a housewife from Hutchinson. She and her husband, Richard, used payday loans because their traditional debt had piled up and Billie had become ill and unable to work.

While payday loan firms acknowledge that more people seem to be turning to them, that doesn't mean the companies are loaning more money.

For one thing, oversight in many states has increased in recent years, with voters and regulators moving to limit the number of loans and fees or just ban the industry entirely. Also, even these creditors of last resort have one requirement that some people struggling during the economic downturn can't seem to come by: a job.

"We want consumers to be able to pay us back," Advance America Cash Advance Centers' spokesman Jamie Fulmer said. "We don't want a consumer to be in a situation where they are in over their head with our product."

Advance America Cash Advance Centers' collection methods "aren't as sophisticated" as those used by larger financial institutions, noted Fulmer, who said the company doesn't use collection agencies or phone banks to badger clients to make payments.

"If they don't pay us back and make no effort to work with us, we do what others do: deposit the check and hope it clears."

There are no hard numbers on payday loans, because firms won't release those figures, but they do acknowledge the increased interest in the products, even if the companies aren't lending more money. Steven Schlein, spokesman for Community Financial Services Association, a trade group for the payday loan industry, said it will know more about the financial meltdown's impact as time passes.

"Customers are trying to make smart decisions. They don't want to bounce a rent or utility check," Schlein said. "It's usually a temporary thing where their paycheck isn't matching up to their means."

Uriah King, an analyst with the Center for Responsible Lending, based in Durham, N.C., said payday loans became more popular as the credit crisis limited access to traditional lending sources.

"It infected the entire credit market," King said.