The number of payday lending businesses in Wyoming has more than doubled and the amount of money lent by those businesses has more than tripled since 2000, according to a children’s advocacy organization that supports legislation to rein in the industry.
Payday loans trap families in cycles of debt and ever-deepening poverty, representatives of the Cheyenne-based Wyoming Children’s Action Alliance said Thursday.
“Rather than providing them with the kind of loan that helps them get back on their feet, it sort of sucks them into a debt trap,” the alliance’s Marc Homer said.
A representative of the industry said banks and credit unions can’t provide very small loans and growing numbers payday loan shops only reflect growing demand by consumers for short-term credit.
The alliance announced that it is supporting pending federal legislation that would cap all consumer loans including payday loans at a 36 percent annual percentage rate.
Payday loans are effectively advances on a borrower’s next paycheck. The borrower pays a fee and writes a postdated check that the company agrees not to cash until the customer’s next payday.
People get into trouble when they fail to pay off payday loans promptly. When that happens, the fees add up - effectively becoming astronomically high interest rates.
In Wyoming, the fees work out to an average annual rate of 521 percent, according to Homer.
“These things can be quite devastating for people who pursue it with the objective of helping themselves make it to the next paycheck,” he said.
But low-income people often have few options when, for example, their car breaks down and they have get it fixed to keep their jobs, said Deanna Frey, executive director of the alliance.
“I just see it as really a way to send people who are lower and middle income into poverty - and those who are in poverty deeper into poverty,” Frey said.
Payday lenders tend to set up shop in low-income areas and market to minorities and women, according to the alliance.
But the national trade group for payday lenders, the Alexandria, Va.-based Community Financial ( CFFC - news - people ) Services Association, says the businesses provide a valuable service.
“If they were getting it anywhere else, payday lenders wouldn’t be opening as many stores,” said Steven Schlein, a spokesman for the association.
He said the proposed 36-percent cap in effect would outlaw payday loans.
“Which leaves consumers with what?” he said. “No one else - except for pawn shops, where you need to use collateral - is going to make them a $300 loan.”
Alliance figures show that in 2007, nearly every significantly sized Wyoming community had a payday lending business. Exceptions included Lander and Kemmerer.
Cheyenne had 19 payday loan businesses, more than any other Wyoming community. Casper had 13 and Gillette eight. Laramie and Riverton each had six. Rock Springs and Sheridan had five apiece.
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By MEAD GRUVER
