Ruby Golden, a 62-year-old disabled Dallas hospital aide, owes so much money that she's lost track of the amount. It's somewhere in the thousands of dollars, she said, a sad result of her serial encounters with payday lenders.

"They got so much money from me," she said. "I got tied up with seven of them. I was borrowing from one to pay the other."

Payday lenders, with names such as Fast Cash and Ace Cash Express, usually operate from shopping centers and Web sites. They offer borrowers – often those with troubled credit histories, frequently behind on their bills – instant cash for short periods at rates far above what banks charge. On an annual basis, the interest rate on some payday loans can exceed 900 percent.

"It's greed colliding with need," said state Sen. Eliot Shapleigh, D-El Paso.

The state of Texas provides virtually no oversight of the business. Shapleigh and several other legislators have introduced bills that would regulate – or effectively abolish – payday lending in Texas.

Payday lenders have spent hundreds of thousands of dollars hiring Austin lobbyists and donating to legislators – and not for the first time. Shapleigh tried to pass bills regulating payday lending in the last legislative session, but they fell to the concerted efforts of lenders' lobbyists.

As borrower-turned-lender, UNT student sees both sides


"They followed us like a pack of dogs," he said.

In one year, Texas payday lenders make at least $2 billion in loans from more than 3,000 storefronts. They collect, by some estimates, more than $400 million in fees.

For the most part, the lenders cater to customers without access to bank loans or credit cards.

"It's not like the banks are willing to do this," said Xavier Dominicis, vice president for public affairs at Plano-based Rent-A-Center, which has 113 payday lending outlets in Texas. "The economy is circling the drain. If ever there was a time that consumers should be given greater options, this is it."

A security guard keeps watch on customers at the PLS Loan Store at Skillman and Abrams in Dallas. Fast-cash lenders say they fill a need; critics say they prey on the desperate.

A $100 payday loan initially may cost the borrower $20 for two weeks. If the borrower can't pay it back on time, he may extend the loan by paying a series of $20 fees. Borrowers, many of whom already face financial binds, can end up owing more in fees than the value of the original loan.

Those who favor abolition depict the companies as predatory lenders who exploit the poor.

"Their business model relies on people not being able to pay," said Don Baylor of the Center for Public Policy Priorities in Austin. "A $500 loan may end up costing an individual $4,000 in the long run."

The lenders say they provide a valuable service to those who badly need short-term help.

"Without us, I don't know where these people would turn to," said Martha Potter, a market manager for Cash America's Payday Advance. "I don't think people realize how devastating a sick child can be when you can't go anywhere else to get $200 for doctors and prescriptions."

Borrower Golden sees both sides. "They're not putting no gun to your head," she said. "We're just doing it because we're desperate."

But, she added, "these people, they're using folks."

In Texas, no state agency oversees payday lending, and the Legislature has imposed no interest rate cap.

"They've enjoyed not having anyone come in and look at their practices," said state Sen. Wendy Davis, D-Fort Worth.

The state's Office of Consumer Credit Commissioner is charged with protecting consumers against abusive or deceptive lending practices. But for payday loans, "we have no enforcement or jurisdiction over that," said Commissioner Leslie Pettijohn.

Legal loophole

That's because payday lenders in Texas, using a legal loophole unique to the state, do business as "credit service organizations."

Under the state finance code, credit service organizations exist for "improving a consumer's credit history or rating." Payday lenders use that status to process loans from third parties and collect fees – not interest – thereby avoiding usury laws.

"On its face, the CSO model does not appear to be prohibited under Texas law," a state attorney general's analysis concluded in 2006. "Whether ... this model is the best public policy choice for the state of Texas is one that must be addressed by the Legislature."

State Rep. Carol Kent, D-Dallas, said she was surprised to find that the payday lenders face no direct oversight.

"Shocked is the word," she said. "That shows you how one loophole can open up and almost unravel before your very eyes."

She has introduced a bill that would give the consumer credit commissioner the power to license and regulate payday lenders. "I want these Wild West lending practices brought into compliance," Kent said.

Dominicis of Rent-A-Center said his company favors unspecified legislation that would "protect consumers," but said harsh measures are unnecessary.

"Nobody who is receiving these loans is up in arms, which suggests to me it doesn't need greater regulation," he said.

Generally, payday lenders require borrowers to have a job or another source of income, such as Social Security, and a bank account. The borrower supplies a postdated check equal to the loan amount plus fees or electronic account access. The lenders usually do not conduct credit checks.

The average loan, companies say, is between $350 and $400.

A 2008 survey of payday borrowers by Texas Appleseed of Austin, a group whose stated mission is to promote "social and economic justice for all Texas," found that more than half rolled over or extended their loans before paying them off. And, the group reported, almost one in four borrowers rolled them over multiple times.

"There is a growing concern that these small-dollar loans ... are trapping consumers who can afford it least in a destructive cycle of debt," the Appleseed report said,

Yolanda Walker, director of public relations for Fort Worth-based Cash America, said borrowers are willing customers, not victims.

"We hear all those stories about, 'Look at poor Linda – she's got $4,000 in loans out,' " Walker said. "Well, Linda made a choice to come in here."

The lenders say allowing borrowers to dig themselves into too deep a hole is not good business.

"If you end up with most of your customers trapped in a cycle of debt, you're not going to get very far," said Christopher Korst, executive vice president for Rent-A-Center.

Payday lenders argue that their absence will increase problems for the working poor. They point to two 2007 reports by the Federal Reserve Bank of New York.

One found that payday lending "does not fit our definition of predatory," although "it comes close." The other noted that after payday lending was effectively banned in Georgia and North Carolina, bounced checks and bankruptcies increased.

Sixteen states have imposed payday lending rate caps, ranging from 17 percent to 60 percent annually, according to the Center for Responsible Lending, a nonpartisan research organization in Durham, N.C. The limits had the effect of strongly suppressing or largely eliminating payday lending in those states.

Last year in Ohio, the state assembly capped rates at 28 percent. Payday lenders campaigned to force a referendum, but voters approved the limits by a two-thirds majority.

One Texas bill by Shapleigh and co-authored by Davis would put a 36 percent annual percentage rate cap on payday loans.

"I don't think they can look anybody in the face and say, 'We can't make a profit at 36 percent,' " Davis said.

But they frequently do say that. "Thirty-six percent is a stalking horse for 'We don't want this business in this state,' " said Korst of Rent-A-Center. "You can't make this kind of loan ... at what amounts to [a fee of] a dollar and a half every two weeks. You can't do it."

The lenders also say they must contend with relatively high default rates of about 6 percent.

Under the current structure – or lack of it – the payday loan business in Texas has attracted large companies making considerable profits. Cash America, a pawnshop operator and payday lender based in Fort Worth, recorded net income of $81 million last year – a 132 percent increase in just four years – on total revenue of $1.03 billion.

Advance America, the largest payday lender in the nation, operates 2,767 centers in 33 states, with 252 in Texas. Last year, Advance America made $4.2 billion in payday loans and charged $676 million in interest and fees.

EZCORP of Austin has 287 payday lending stores in Texas. The company, which also operates pawnshops, had net income of $52 million on revenue of $457 million last year.

Being heard in Austin

With at least seven bills pending in the Legislature that would hamper or eliminate payday lending, many companies have showered big money on lobbyists in Austin this session.

"We've certainly heard from them," Davis said. "They walked into our office and gave us their song and dance."

Texas Ethics Commission records show that major payday lending companies have spent between $475,000 and $975,000 this year on lobbyists. Commission filings allow companies to list lobbying expenses within certain ranges rather than specific amounts.

The lobbying efforts may have paid off. Sponsors of bills regulating payday lenders say passage grows dimmer by the day, with the bills bottled up in committee.

"It's going to be a bit of a struggle," Kent said.

The payday companies also have been generous with political donations. Since 2000, payday lenders have contributed more than $423,000 to Texas political parties, causes and candidates.

Cash America alone has given $283,588 in that period, according to an analysis of ethics commission data by The Dallas Morning News.

"We need to keep our finger on the pulse of what's going on at the state and federal level to guarantee that we and our customers have access to an open and competitive marketplace," said Walker of Cash America. "We need to be involved."

Forming a PAC

In addition, a group of companies that supply the money to payday lenders in Texas has formed the Texas Consumer Lenders Political Action Committee.

Since July, it has spent more than $161,000 on lobbyists and contributions to legislators.

The PAC contributed $20,000 to Gov. Rick Perry in October and gave a total of $31,000 to all nine members of the state Senate Committee on Business and Commerce.

The bills by Shapleigh and Davis were referred to that committee. Janice McCoy, chief of staff for Business and Commerce chairman Troy Fraser, R-Horseshoe Bay, said he plans May 5 hearings on at least some of the payday lending bills.

Lenders PAC treasurer Eugene McKenzie, an Arlington lending agent, said the group simply wants to make sure that any regulation imposed by the state is not unreasonable.

"The demonization of this industry is unfortunate," McKenzie said. "We wouldn't have these customers if there wasn't a need."

He takes special exception to the "predatory" label. "What this really is," he said, "is a market solution."

Staff writer Ryan McNeill contributed to this report.