Their signs dot America's roadways and now they're on the information superhighway as well — payday lenders. They use the Internet to offer quick cash to tide consumers over, but they're putting some in financial trouble.
Dallas history teacher Thomas Hall thought he found fast cash for Christmas presents on the Web. He got a $200 loan in exchange for a check to be cashed on his next payday.
"The trap is, you know, once you get in one, you end up having to take out more," says Hall.
When the loan came due two weeks later, Hall couldn't pay the principal, only the sky-high interest rate, about $30 for every $100 borrowed. That puts Hall and others on a debt treadmill.
"A lot of these loans are structured to just renew every payday," says Jean Anne Fox of the Consumer Federation of America. "So you never pay down the principal. You just keep paying the finance charge every two weeks."
That may explain in part the phenomenal growth in this now $40 billion industry. The number of storefront outlets has grown from 200 in 1993 to more than 22,000 today. The convenience comes with a high interest rate because lenders say the borrowers are high risk.
But several states limit how much interest lenders can charge. And that's where the Internet comes in. Consumer advocates say payday lenders use the Web to bypass state laws.
"A lot of payday lenders will effectively attempt to rent a charter from a national bank," says Dean Malone, Thomas Hall's attorney. "And thereby get around all the state law because federal law prempts or trumps state law."
Because he failed to do his homework, Thomas Hall, hounded by collection agencies, ended up taking out six loans for a total of $800. They cost him almost $2,300 to pay off.
"I was kind of naive," admits Hall. "I'd never really heard what payday loans were."
They're an expensive way to learn that easy money has a very high price.