Report: Payday loans cost at least $4.2B.

(From AFX Europe (Focus))

COLUMBIA, S.C. (AFX) - The payday loan industry took $4.2 billion out of consumer pockets in 2005 because states have not done enough to restrict high interest loans and practices that trap people in financial quicksand, the Center for Responsible Lending said Thursday.

States need to do more to limit interest rates and fees from repeatedly refinancing when people don't have the cash to repay small loans because consumers can end up paying annual interest rates of up to 400 percent on small loans, said Michael D. Calhoun, president of the group.

The payday lending industry said the report was flawed, with misleading and inaccurate information.

The group's report estimates 90 percent payday lender revenue comes from people who can't pay off loans when they're due and not from one-time users trying to meet a short-term financial emergency. The typical consumer borrows $325 but repays $793, the report said.

Consumers are paying the most in 10 states: California, Missouri, Louisiana, Texas, Alabama, Illinois, Ohio, South Carolina, Virginia and Florida. Eleven states, including Connecticut, Georgia, Maine, Maryland and Massachusetts, have banned or curbed the industry and saved consumers $1.4 billion, according to the report.

States should impose caps that limit interest rates to no more than 36 percent, similar to what's been imposed on loans to U.S. military personnel and their dependents, Calhoun said.