According to the Center's study, payday lending costs American borrowers $4.2 billion, up from $3.3 billion in a study done in 2003, the Center said.

Significantly, the study reiterated the charges that payday lenders make most of their money from Americans who must take out repeat loans in order to keep up with their debt load, a practice called flipping, and that payday lending stores are disproportionally found in African-American neighborhoods.

"This loan flipping is the dubious hallmark of payday lending. The terms of a payday loan require a cash-strapped borrower to choose between paying off a loan of $300 in one lump sum after just two weeks, or paying interest of $50 or so to renew the loan for another pay period. When this cycle repeats every two weeks, that $50 of interest adds up very quickly."

This is significant because it appears to contradict a study released by researchers working for the Federal Deposit Insurance Corporation in April 2005, which found that repeated borrowers were not the mainstay of profitability for the payday loan industry. The Center's study quotes some parts of the FDIC study, but leaves out the declaration about the industry's profitability not being reliant on repeat borrowers.

But Uriah King, an analyst who prepared the study, said there was no conflict because the FDIC study had looked at the profitability of individual loans and the Center's study has looked at the loans in aggregate.

"No one has argued that a borrower's twelfth and thirteenth loan is necessarily any more profitable than the first," he said. "What we argue, and what the data bears out, is that the overwhelming majority of people who use payday lenders do not use them on a one-time basis but repeatedly over many times."

He also noted that the FDIC study had used data only provided by the payday lending industry itself whereas the Center's study relied on publicly available data, much of which came from state regulators. "If you consider that in some of the states, like Iowa, the average payday borrower used a payday loan 12 times in one year it's pretty hard to argue they are just using this on a one time basis to tide them over," King contended.

The optimism Calhoun and the others expressed came from a sense, based on the military lending cap and the actions of some states, that they were finally making progress fighting what they considered a pernicious product. Since the 2003 study was published the number of states that either ban payday lending outright or have capped the practice to 36% has grown to 11: Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia.

Calhoun, Fox and Bond praised Georgia and North Carolina especially for not only having passed payday lending bans, but for seeing those bans through legal fights. Fox pointed out that the Virginia legislature this session may pass similar restricting legislation.

In this last session, Fox proved too optimistic. Word came two days later that a committee in the Virginia Assembly had let a bill that would have put the state's payday lenders back under Virginia's consumer lending percentage rate cap die.

Fox also attacked the suggestion that payday lenders are the only alternative available for smaller, short-term loans. Not only have credit unions and other financial institutions begun looking for ways to step into the breach, she noted, some states have long established industries which offer smaller loans which can be paid back in installments. In North Carolina, she pointed out, as the payday lenders have left the state, the number of these traditional lenders, all of which cap their interest rates at 36%, have been increasing.

Predictably, the Financial Service Centers of America (FiSCA), the trade association for the payday lending industry, heaped scorn on the report and pointed out that its critics did not acknowledge that other alternatives were often worse or that its customers knew what they were doing when they chose to take out these loans.

"While being highly critical of one particular industry, the CRL completely failed to discuss the even higher costs associated with alternatives," argued Henry F. Shyne, executive director of FiSCA. "Bounced check fees, overdraft protection fees and late bill payment fees can all exceed the cost of the average payday loan from a licensed operator. Yet, nowhere in the CRL report is there any mention of how and what traditional financial institutions charge their customers for short-term credit options. The report also completely discounts the money management capabilities of these customers. As a matter of fact, consumers who use payday loans are financially savvy individuals, and they know payday loans can be a cost- effective option."

He also pointed to an industry survey that FiSCA says indicates that most payday lending customers are happy with the service.

"The survey paints a very positive picture about the industry and the consumers who use it," said Shyne. "It completely debunks the myth that self-described 'consumer advocates' such as CRL continue to perpetuate about our customers and our industry. These groups that claim to represent consumers need a reality check. They need to recognize the reality that alternative financial service providers are offering a valuable service at a reasonable price which consumers understand and appreciate." –[email protected]