Payday lenders' fees equal up to 910 percent a year

WASHINGTON -- Businesses offering short-term cash advances against borrowers' paychecks charge fees equivalent to annual interest rates of 182 percent to 910 percent, a survey shows.

The companies making the payday loans are increasingly entering partnerships with out-of-state banks to skirt the law in the 19 states that prohibit such loans, officials of the Consumer Federation of America and Public Interest Research Group said Tuesday.

"Predatory triple-digit payday loans threaten vulnerable consumers in this economic downturn," Edmund Mierzwinski, consumer program director for PIRG, said at a news conference. "We urge Congress and the states to ban ... holding checks as ransom for fast loans."

A representative of the booming payday loan industry said the businesses fill a market need.

"They're making a reasoned decision," said Lynn DeVault, a director of the Community Financial Services Association. "They do need access to credit."

Payday loans work this way: You write a check dated for your payday and give it to the lender. You get your money, minus the interest fee. In two weeks, the lender cashes your check or charges you more interest to extend -- or "roll over" -- the loan for another two weeks, possibly at a higher interest rate.

The most common fee for a $100 cash advance is $15, an interest rate of 390 percent on an annual basis.