Rick Allen wears a lot of hats in Madras. He's the mayor. He owns and develops commercial property. The local Radio Shack is his. And he also owns a payday loan and check cashing center in the middle of town, a business that makes him — as he once described it — "kind of a shyster."

A few blocks away at Community First Bank, branch manager Chris DuPont has closed at least four personal accounts in the last 18 months because the customers' accounts were repeatedly overdrawn to cover spiraling debt on payday loans.

Because Mayor Allen's Check Express is the only short-term lender in town, it's a fair bet his company was overdrawing the accounts to collect loans he gives out at $9 interest per week on $100 principal. Although they can't collect the principal from an empty account, lenders do collect a fee every time they overdraw an account, which they are allowed to do even if they know an account is empty.

But bank manager DuPont is surprisingly forgiving of payday lenders — in spite of the hassle that overdrafts cause his bank and the humiliation they cause his customers. He sees the loans as a crucial service that isn't offered by traditional banks like his.

"I think the loans are good for a one- or two-time deal," DuPont says. "It's when it's an every week situation that it starts to make things worse."

This spring, though, an angry chorus of Democratic state legislators wasn't seeing much good in the booming payday loan industry. Backed by the editorial boards of most of the state's major newspapers, which called payday lending "loan sharking" and "close to highway robbery," the Democrat-controlled state Senate passed a moderate bill capping loan amounts and interest.

Fortunately for the industry, House Speaker Karen Minnis (R-Wood Village) killed the bill, after being angered by a Money in Politics Research Action Project report that detailed the $12,000 in campaign contributions she'd received from the short-term loan industry.

Minnis spokesman Charles Deister denies that contributions influenced the House Speaker. "People contribute to candidates for all kinds of reasons," he says.

The result, in any case, is no law from the Legislature this session. Meanwhile, the question hangs unresolved: Are payday lenders a public friend or foe?

There's no easy answer, given how tightly woven the industry is with the short-term financial survival of Oregonians. There are more storefronts selling payday loans in the state (345) today than those offering Starbuck's lattes. And many well-off Oregonians are getting advances. "Doctors, stockbrokers, engineers," says Charles Donald of the state Department of Consumer and Business Services, which surveyed payday loan recipients last year.

The state's survey and interviews with payday-loan users show that the trend is closely intertwined with rampant consumerism, shoddy personal financial planning and stagnant pay among the people who frequent payday loan stores. "Everything's going up but my paycheck," one respondent told state surveyors. Most respondents said they used payday loans to cover bills and groceries. Traditional banks mostly refuse to give payday advances for such expenses.

The payday loan industry has stepped into the void. As Luanne Stoltz, a Portland payday lender and industry spokeswoman puts it: "It's like going to a 7-11 to get milk instead of going all the way to the grocery store — you pay for convenience."

PAYDAY LENDERS' IMAGE PROBLEMS seem tied to the fact that the industry's rise overlapped with one of Oregon's worst economic declines in 20 years. Charles Donald, however, doesn't connect the explosion of payday loans to stagnant private-sector wages or recent wage freezes for state workers. Instead, he traces the industry's rise back to the mid-1990s, when check cashers, filling in for banks that stopped cashing checks for nonclients, began advancing money on paychecks. From there, the industry grew precipitously: Between 1999 and 2003, loans made against a paycheck or other personal income such as a tax refund increased from just under $64 million to $215 million in Oregon.

The typical two-week loan runs between $15 and $20 interest for each $100. After producing a previous pay stub, the customer writes the lender a check for the principal plus the interest. The lender cashes the check two weeks later, after the customer's account has been replenished on payday. If the account isn't flush, the customer can pay another two weeks' worth of interest to keep the original check from being cashed. Oregon allows three of these rollovers.

Calculated as an annual percentage rate, $15 interest for two weeks on a $100 loan works out to 391%; such a hefty APR has fueled criticism of the industry. "It's usury," says Angela Martin, a policy advocate for the Oregon Food Bank.

Martin has heard enough payday loan horror stories to conclude that the industry is growing at the expense of impoverished Oregonians. "We got onto this issue after seeing a TV ad of a woman at a grocery store asking, 'How am I going to pay for these groceries?' And the payday loan guy comes on screen to offer his services," Martin says.

Anti-hunger advocates were vociferous backers of increased regulation this year and one of the centerpieces of their campaign was a likeable, middle-aged former nurse named Dena Speer.

A few years ago, a flood of ailments — diabetes, skin cancer, high blood pressure — spiked Speer and her husband's medical bills, forcing them to take out payday loans to pay back rent on their home in Portland. But her husband, who was earning $10 an hour at a Portland telemarketer, oversubscribed his bank account to cover the loans. When the checks finally went through, they bounced. Nonsuffucient funds fees and rollovers piled up, and eventually Speer and her husband accrued $8,000 in debt. Lenders garnished his wages, and the couple filed for bankruptcy in June.

What sticks in Speer's mind, and colors the industry black for her, is the fine print on many loan agreements that allows lenders to cash a held check and start collecting fees unannounced before payday, if the lender suspects a debtor's paycheck is already commited to other lenders. Speer and her husband started racking up fees this way — and began their slide toward bankruptcy. "I didn't read the fine print," she says.

IN CONTRAST TO SPEER, consider the situation of Brett Ray, a 34-year-old who recently stopped outside a downtown Portland Money Mart, a high-end money wiring and lending chain, to explain how he'd overleveraged himself and tapped into storefront loans a few years back.

Ray dislikes the industry's high interest, but mostly he blames himself for the financial hole he was in after he lost his $50,000-a-year IT job, and still had an Isuzu Rodeo, Beechcraft ski boat and Trendwest timeshare to pay down. "I don't manage my money well," Ray admits. He sees loans against paychecks and car titles as an expensive way to meet a burning need. "You have to have cash to survive in our society," he says.

Money Mart franchisee John Gillespie argues his industry is a last resort — and steadfast friend — for people such as Brett Ray.

"The middle class is disappearing. I'm not an economist but my day is filled with real people," says Gillespie, a Canadian who has opened six Money Marts in Portland. "You'd be surprised with the loyalty of our customers. For some people, [our clerk] is the only one who's nice to them all day."

Angela Martin of the Oregon Food Bank doubts the customer service is sincere: "Of course they're going to be nice when you come to pay the king's ransom."

Even if payday lenders' services are crucial, though, there's a contradiction in the industry casting itself as the friend of the needy. Payday loans couldn't survive without some desperation in a broken landscape of personal finance. If the problems driving payday loans — stagnant wages, skyrocketing medical bills, easy credit with no money down — were ever to be resolved, the industry would see a downturn.

Already, payday loan establishments are getting competition: Nine Oregon credit unions now offer some form of payday advance, with interest that doesn't roll over. If, on top of that, wages opened up a good lead on the cost of living and Oregonians started becoming savers rather than out-of-control spenders, loan storefronts would likely board up by the bunches.

Right now, however, the trend-line is up — with new brands such as the Victoria, Canada-based Money Mart entering the Oregon market. And the industry's allegiance to the current state of affairs apparently tints some payday lenders' view of economic reality. When Luanne Stoltz, the Portland lender (she's also a former school teacher), looks at the personal finances of her Oregon client base, she sees no reason for concern. That, despite Fed Chief Alan Greenspan's statement last year that the high rate of personal bankruptcy in America is somewhat worrying.

"I haven't heard that," Stoltz says. "My understanding is that our economy is the strongest it's ever been."

[SIDEBAR]
TOP RECIPIENTS FROM THE PAYDAY LOAN INDUSTRY
(2004 campaign contributions)

Karen Minnis (R-Wood Village)	$12,000
Wayne Scott (R-Canby)	$6,000
Roger Beyer (R-Molalla)	$6,000
Patti Smith (R-Corbett)	$2,000
Linda Flores (R-Clackamas)	$2,000
Joanne Verger (D-Coos Bay)	$1,000
Mike Schaufler (D-Happy Valley)	$1,000
Susan Morgan (R-Myrtle Creek)	$1,000
Jeff Merkley (D-Portland)	$1,000
Greg MacPherson (D-Lake Oswego)	$1,000

Source: Money in Politics Research Action Project

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Copyright 2005 Oregon Business magazine