Senator Eliot Shapleigh - El Paso, Texas

In El Paso, where 200,000 people live below the poverty line, it costs more to be poor. Strapped for cash, but without good credit or an another alternative, many low-income El Pasoans regularly turn to payday loans.

In exchange for the quick emergency cash they need, they also get exorbitant interest rates, which must be repaid, or additional debt, making it even tougher to escape poverty.

Just ask Valerie Estrada, who, as a single mother of four, a few years ago took out high-interest, two-week loans to pay bills, buy necessities and put food on the table.

"Back then, I only got paid once a month, so I would take out one or two payday loans to buy things that we needed. Then, when I got paid, my whole check would go to paying those loans," Estrada said. "It took a long time to be able to get out of that cycle."

"I would ask for a $365 loan and a $400 loan and, by the time I repaid the two loans at the end of the month, the first one would go up to $450 and the second one would be $500 to $600," she said.

The $35 to $150 payday-loan fees Estrada describes are not atypical in El Paso. In fact, according to a bill filed last month by state Sen. Eliot Shapleigh, D-El Paso, payday lenders in Texas are using a legal loophole to charge exorbitant interest rates, between 300 percent and 1,100 percent when annualized.

By registering as "credit service organizations," the payday lenders evade Texas' small-loan law, enabling them to charge rates 20 times as costly as a high-interest credit card, Shapleigh's office said. Included in the five bills the state senator filed last month that could regulate the industry is one that would limit payday-loan interest rates to 36 percent annually.

Shapleigh's efforts are a good start, but additional action is needed to support El Paso's poor, said Anibal Olague, executive director of the Border Fair Housing and Economic Justice Center.

"One of the biggest issues is access" to loans, Olague said.

He said that many banks fail to offer the short-term loans some poor people need and that banks aren't as prominently located in low-income neighborhoods. Drive through the poorer areas near Fort Bliss, Downtown and along Alameda Avenue, and you'll see countless billboards and signs for payday loans, as well as other high-cost financial service providers, Olague said.

"These guys are everywhere," he said.

Nationally, high-price financial service providers tend to be more densely concentrated in low-income neighborhoods, according to a study released last year by the Washington, D.C.-based Brookings Institution. It found that banks were less frequently concentrated poor areas, although 29 percent of poor neighborhoods analyzed did contain one bank or credit union, while 75 percent of those neighborhoods were found to have one such institution nearby.

The study said these demographics are one reason it is often expensive to be poor. It reported that compared with wealthier people, low-income earners can pay thousands of dollars more a year on their cars, home, insurance, furniture, groceries and financial services.

However, even in cities where many bank branches are in low-income neighborhoods, like Seattle and San Francisco, many poor people still turn to payday loans, said the study's author, Matt Fellowes.

Fellowes said two things must happen to overcome the problem. First, financial education is needed to inform poor people of their options and to build trust in banks and credit unions. And second, because low-income people need short-term financial services, the options banks offer may have to change.

Banks and credit unions "might not offer products and services that make sense," Fellowes said.

In El Paso, the West Tex as Credit Union offers a low-fee payday loan. Charging only $10 for a $500, two-week loan, the credit union is doing what other bankers in town have said would be economically unfeasible.

The credit union's CEO, Rufino Carbajal, acknowledged that the practice is not a big moneymaker. On 201 loans totalling $77,515 made during the first quarter, the credit union barely broke even after losses and transaction costs were figured in.

But, Carbajal said, direct profit is not why the credit union offers the service.

"There's quite a bit of losses in that program," he said. "But the key was to be able to get some people into the main credit and savings accounts."

Basing his opinion on work he's done with poor El Pasoans, Olague said programs like West Texas Credit Union's are exactly what the county needs.

"It's useless to go out to these families and say this (high-interest payday loan) is a bad thing, but not to offer alternatives," he said. "We need to make these banks and these credit unions accountable."

El Paso Times reporter Zahira Torres contributed to this story.

This article was published in Week 4 of the El Paso Times Poverty Series.