PAYDAY LOANS TAKE BIG BITE.

Byline: Deborah Adamson Daily News Staff Writer

Check-cashing businesses are charging astronomical interest rates on so-called payday loans, two consumer groups reported Tuesday, in a practice they called quasi-legal loan sharking.

Check-cashing businesses levy as much as a 391 percent annual interest rate on loans that are backed by future paychecks, according to a study released by the Consumer Federation of America in Washington and the California Public Interest Research Group.

``Consumers are being ripped off,'' said Janee Pelletier, consumer program associate for CalPIRG. ``They go into low-income communities and prey on people who need instant cash.''

In contrast, standard credit cards from the top 10 issuers have an average interest rate of 17.51 percent a year, according to Bankcard Barometer, a bank credit-card publication based in Frederick, Md.

Check cashers charge $15 for every $100 borrowed by people short of cash. The customer writes them a postdated check that the check casher won't deposit until there's money to cover it. The consumer can pay off the loan in cash, or deposit his or her next paycheck to cover the borrowing.

But if the loan isn't paid off, it gets rolled over so consumers end up paying an additional $15 for every pay period until the account is settled. If the loan is unpaid for a year, consumers will pay $390 in interest for a $100 loan.

However, consumers usually aren't aware they're paying such high rates. The survey found that 88 percent of payday lenders in seven out of eight states did not tell customers the annual percentage rate, or APR, when asked for a price quote.

``If you call them, they say they charge a 15 percent interest rate. But they don't tell you that it's every two weeks,'' Pelletier said.

Unfortunately, the people who use check cashers are folks who can least afford to do so, the consumer groups said.

``These are low-income consumers,'' Pelletier said.

Popularity of payday loans has exploded: They weren't around 10 years ago but now they're available in 21 states, the groups said. A major player in check cashing is Ace Cash Express of Irving, Texas, which doubled its annual payday loan volume last year to $10.1 million, the consumer groups charged.

Eric Norrington, vice president of marketing at Ace Cash, said its payday loan service provides emergency money for folks who otherwise couldn't get money from other sources, such as people with credit problems.

He said the rate Ace charges reflects the risk the company takes by accepting a personal, uncollateralized check in exchange for cash.

Advance America, a payday loan company in Spartanburg, S.C., opened its first store a year ago and expects to have 500 outlets by year-end in more than 16 states, including California. Some national banks also offer payday loans.

Advance America officials could not be reached for comment.

Legislation to protect consumers from exorbitant rates are weak, the groups charged. Nineteen states including California have laws concerning payday loans, but half don't stop rollovers, 68 percent don't require lenders to disclose the APR and 95 percent don't have a minimum loan term of 30 days to give consumers some breathing room to repay the borrowing.

Wells Fargo Bank is one institution that offers payday loans on direct deposit accounts.

The bank charges $1 for every $20 borrowed, for a 5 percent interest rate per pay period. That's a rate of between 60 percent to 130 percent a year, depending on whether payday is twice or once a month. The maximum loan is $200 per paycheck or half of the paycheck. Rollovers aren't allowed.

A Wells Fargo spokeswoman said it is not recommended that consumers regularly depend on these loans since interest rates are high.

Pelletier urges consumers to check into other sources of funds before tapping payday loans - credit cards, bank loans, money from friends and relatives.

``Exhaust all possible avenues before using payday loans,'' she said.