Senator Eliot Shapleigh - El Paso, Texas

Mitchell McFadden, and his wife Rena lost their home and are living in a bi-weekly rental hotel, Thursday, March 1, 2007, in Columbia, S.C. With his bills in hand they both work and are struggling to make ends meet. Payday lenders have begun to hound Rena and her husband, threatening to take them to court unless he quickly repays the $2,400 he owes. (AP Photo/Mary Ann Chastain)

COLUMBIA, S.C. - Soft music plays in the background of a new TV ad campaign as it urges viewers to use payday loans only for emergencies. One scene shows a broken-down car. Another depicts a boy in a doctor's office, his arm in a sling.

"Please borrow only what you feel comfortable paying back when it's due," says Darrin Andersen, president of the Community Financial Services Association. A new emblem will tell borrowers which lenders meet trade group requirements.

The $10 million campaign, announced last month, along with some industry policy changes, came as several states consider legislation to limit payday lending practices. But it's not stopping consumer watchdogs and people already in debt from questioning the motives of an industry whose loans' annual interest rates can exceed 400 percent.

"Payday lenders make it easy for consumers to get trapped in predatory debt," said Teresa Arnold, legislative director for AARP in South Carolina.

Payday lenders offer quick cash advances, for a fee, secured by a postdated personal check from the borrower. Customers are supposed to repay the loan once they receive their next paycheck. Borrowers who can't pay often "roll over" the loan repeatedly, leading to more charges that can quickly add up and lead to a cycle of debt. Customers are drawn to the lenders because they don't run credit checks.

Rena McFadden and her husband, Mitchell, who works at a shipping warehouse, have become trapped. They are dealing with lenders threatening court action unless the McFaddens quickly repay the $2,400 they owe.

"The time to repay is too short. He's been trying to talk to them, but they won't talk," said Rena McFadden, who works in a dry-cleaning shop.

They started with one $100 loan to make some improvements to a home they wanted to buy. "He paid some of that one back, but then he got another loan for $200, then $300," McFadden said. She said the situation snowballed and now they owe $2,400 in five loans to different lenders and are not able to buy the home.

More than 22,000 payday lenders have locations in the U.S., with $6 billion annually in revenue, said Steven Schlein, a spokesman for the financial services association, which represents about two-thirds of payday lending companies.

The payday loan industry's biggest change would give customers more time to pay back a loan with no financial penalty. This extended payment plan would be available at least once a year and provide borrowers between two and four extra months. It was paired with the ad campaign and a ban on ads that promote the advances for "frivolous purposes."

But lawmakers are still pushing changes. In South Carolina, home to Advance America, the nation's largest payday lender, lawmakers are considering a measure that would cap at 36 percent the annual interest fee on the loans and limit the number of payday loans a consumer could have with a single payday loan company.

Eleven states already have similar interest-rate limits on payday lenders, according to consumer watchdogs, and the payday lending industry considers such rates too low to remain profitable. Proposals in 10 other states would impose similar limits, said Carol Hammerstein, a spokeswoman for the Durham, N.C.-based Center for Responsible Lending.

Texas lawmakers have introduced at least five bills to regulate, curb and collect data from the industry, said Don Baylor of the Center for Public Policy Priorities. Senate Bill 858, introduced by Eliot Shapleigh, D-El Paso, would cap the interest rate on such loans at 36 percent.

Jamie Fulmer, director of investor relations for Spartanburg, S.C.-based Advance America, said the loans are paid back on time by the vast majority, and that penalties for bouncing checks or making late credit-card payments are more severe than payday loan rates.

He said the industry was willing to consider change but that Clemmons' proposal to cap the loans was a backdoor attempt to end them. It would amount to the industry earning only $1.38 per $100 for a two-week loan, he said.

"It costs more money to go to a bank and withdraw my own money from an ATM," Fulmer said. "If there were someone out there who could offer this product to consumers less expensively, they would do it."