In a strip mall north of downtown Durham, a storefront advertises that getting cash is "as easy as 1-2-3."
The three steps are described on the front door:
"1. Just write us a personal check.
"2. Get the cash you need instantly.
"3. We hold your check until your next payday."
Lenders such as this "Check into Cash" store become exhibits today in a long-running debate about such "easy" loans. A study by the Center for Responsible Lending, to be released today, says North Carolina's payday lending businesses are more likely to be in black neighborhoods than white.
"Payday lenders are targeting African-American neighborhoods," said Mark Pearce, president of the Durham-based agency. "There's a racial disparity that exists even when you take income out of the equation."
The study further exposes the racial undercurrent that has charged the payday lending debate for years. And it is sure to deepen the disagreement about the loans just as payday lenders renew their drive for legitimacy under state law.
In payday lending, borrowers write postdated checks for a loan of up to a few hundred dollars, plus a fee that's usually about 15 percent of the loan.
Consumer advocates say payday lenders take advantage of borrowers, catching them in a trap of back-to-back loans that has them paying multiple fees on the same principal. The industry says they fill a need for people who need fast cash.
The debate about such loans is heating up again, both in courtrooms and in legislators' offices. State banking commissioner Joseph A. Smith Jr. is looking into the matter.
Industry hopes for law
The state law regulating payday lending expired in 2001, and state officials told companies to stop making the loans. But companies affiliated with out-of-state banks still offer them, saying those banks are the actual lenders.
Consumer groups, saying that loophole should be closed, have lawsuits pending against five payday loan companies that use partnerships with out-of-state banks.
Smith, who is white, is investigating whether Advance America is operating legally under its arrangement with an out-of-state bank. Advance America has the most outlets in the state.
The fight could move back to the legislature soon. The industry hopes that a bill will be filed as soon as this week that could explicitly authorize payday lenders to operate in North Carolina without an arrangement with out-of-state banks.
William Moore, a construction worker from Durham, is the type of borrower the companies say they serve -- someone who needs a small loan and can pay it off in a few weeks.
Moore, 36, left Check into Cash recently, having paid off $125 he borrowed for two weeks. "I wouldn't do it on a regular basis," he said, adding that the $27 fee was too high.
Moore, who is black, says he wouldn't be surprised if payday lenders concentrate in black neighborhoods.
'What's wrong with it?'
Willie Green, president of the N.C. Check Cashers Association, which wants the payday lending law to be renewed, was skeptical of a study by a vocal industry opponent. "Let's say we were in black neighborhoods," said Green, who is black. "First of all, what's wrong with it?"
Green said payday lenders are in neighborhoods where people make enough to repay their loans. "I'd be a fool to loan somebody some money when I know he can't pay me back," he said.
In 2003, the last time Green worked to get a payday lending law passed, the proposal caused a rift between two state NAACP leaders who were helping him in the legislature, and the national NAACP board, whose president called the bill "anti-consumer."
Responsible Lending's study used Census data to sort neighborhoods by percentage of black residents. Neighborhoods that were at least 42 percent African-American had 7.5 payday lending stores for every 100,000 residents. Those that were no more than 4 percent African-American had 1.6 stores per 100,000 residents.
Responsible Lending counted 385 payday loan shops in the state.
Clarrissa Farrar, an African-American single mother from Raleigh, said payday lenders target working people who don't make enough at their jobs to pay routine bills. "I think they're manipulative," she said. "They know that they're preying on the poor."
Farrar, 42, said she had outstanding payday loans for years. "The first was $50 or $100," she said. "They start you out little. It's almost like they're baiting you."
Her payday loan debts hit a high of $700, she said, when she had loans from two lenders. She used one loan to pay the interest on the other, and the second loan for living expenses.
"I ended up needing to go back again and back again because bills were due," said Farrar, who works at an insurance office. She paid off her payday loans last year with the help of a no-interest loan from Triangle Family Services, a nonprofit agency that helps people who have low incomes.
Conflict likely ahead
Green proposes limiting loans to 25 percent of a borrower's monthly income, or $500, whichever is less, with a 15 percent fee.
"The consumer groups are out of touch with society, thinking they can control" what people do, Green said, "without giving them a better alternative."
The payday lending measure could revive the fight between industry supporters and opponents in the legislature.
"It will come down to a nose count," said Sen. Ellie Kinnaird, a Carrboro Democrat and payday loan opponent, who said the industry works hard to get its way.
"They get the people who work [for payday lenders] who call us and say they'll lose their jobs," said Kinnaird, who is white. "They know how to play the game, and they play it very effectively."
Staff writer Lynn Bonner can be reached at 829-4821 or firstname.lastname@example.org.