Legislators Review Payday Lending Practices.

• Position: Brief Article

A customer needing quick cash goes to a payday lender, usually located in a check-cashing outlet. The customer writes a check for a few hundred dollars dated a week or two in the future (generally the next payday), which the lender holds after giving the customer the needed cash minus a fee.

On the day the check comes due, the customer can redeem it in cash by paying back the "loan" or can simply let the lender cash it.

That's the payday loan business (sometimes called "deferred-deposit transactions"), and an increasing number of states are reviewing the regulations for this particular industry.

The problem can be: If the customer can't afford to pay, he or she may extend, or "roll over," the loan by paying another fee. Calculated on an annual percentage rate (APR) basis, the fee represents an interest charge typically totaling several hundred percent.

As a result, these loans often create enormous debt for those who can least afford it, and, to make matters worse, lawyers and consumer activists allege that some lenders use unfair or illegal collection practices.

Lenders counter that the loans, which have grown explosively in recent years, fill a need for working people who lack access to credit cards or other sources of emergency cash. The lenders say they should not bear responsibility for a small minority who get into financial trouble. Opponents say payday lenders exploit their customers, offering money to people with nowhere else to go.

Robert E. Rochford, deputy general counsel...