CNBC:

Payday loans cost the U.S. economy nearly $1 billion and thousands of jobs in 2011, according to a report from the Insight Center for Community Economic Development.

The study says that the burden of repaying the loans resulted in $774 million in lost consumer spending and 14,000 job losses. Bankruptcies related to payday loans numbered 56,230, taking an additional $169 million out of the economy.

"Payday loans are an ongoing problem and an economic drain," said Tim Lohrentz, the center's program manager and author of the report. "The amount is not huge in the big picture of the total economy, but it's big enough."

Designed to meet the need for emergency cash, the short-term loans are essentially advances on wages and meant to be repaid on the next payday—usually within two weeks. Borrowers secure the loans by providing a postdated check or electronic access to their bank account.

But the loans, which have been around for nearly 20 years, carry onerous interest rates, ranging from 200 percent to 500 percent.

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Data collected by Pew Charitable Trust show that the average payday borrower takes out eight loans a year. On an average loan size of $375, borrowers pay about $520 in interest. According to Pew, the average payday borrower can repay only $100 a month.

Though most payday lenders are storefront or Web operations, major banks also have been players, even if indirectly.

Bank of America, Wells Fargo and JPMorgan Chase have allowed payday lenders to withdraw funds owed by borrowers who are bank customers, including in states such as New York, where payday loans are banned.

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JPMorgan has stated publicly that at the end of May it will give customers more power to stop the withdrawals and close their accounts.

"The practice is terrible," JPMorgan CEO Jamie Dimon said at an investor meeting in February.
Some, including U.S. Bank, Fifth Third Bank and Wells Fargo, offer payday loans under names such as Ready Advance, Fast Loan and Early Access, according to the Center for Responsible Lending (CRL). They can carry interest rates averaging between 225 and 300 percent, CRL said.

Over a third of bank customers took out more than 20 payday-type loans in 2011, and those borrowers are two times as likely as other bank customers to incur overdraft fees, CRL said. Over a quarter of bank payday borrowers were Social Security recipients, it noted.

"What's really insidious about this is that people keep taking out loans to pay off the old loans," Lohrentz said. "Fees from high interest rates and bank overdrafts become more costly than the actual value of the loans."

Payday loans have been under close government scrutiny, particular because of their interest rates.

Thirty-three states allow payday lending, but fifteen have banned them. No state has authorized them since 2005, and Congress in 2007 restricted such lenders from targeting members of the armed services.

The Consumer Financial Protection Bureau recently accused payday lenders of "trapping borrowers in a cycle of debt" and said it may reform rules for short-term loans. Proposals include requiring banks to assess borrowers' repayment ability and a "cooling off" period between loans.

Meanwhile, Sen. Dick Durbin (D-Ill.) and several other Democrats have offered a bill to set an interest rate and fee limit of 36 percent on all open- and closed-end consumer credit transactions.
States that permit payday lending are also taking a harder look. Arkansas, Arizona, New Hampshire, Ohio, Oregon and Montana and Texas have enacted reforms to cap interest rates or are considering such measures.

"The situation seems to be getting better, and I think the increased spotlight on the issue is helping," Lohrentz said. "But more has to be done."
To escape the spotlight and regulations, many payday lenders have moved offshore, to places such as Belize and Malta, and going online.

Three million Americans obtained an Internet payday loan in 2010, according to Pew. By 2016, online payday loans will account for 60 percent of the loans, according to analyst John Hecht of investment bank Stephens Inc.

Even with the high interest rates, the loans are popular. Some 12 million Americans use a storefront or online payday loan each year, according to Pew.

Lohrentz suggested a more traditional way of getting needed cash.

"Some of the desire for them has to do with the slow economy and the need for immediate gratification," Lohrenetz said. "But it might be best for people to go back to borrowing from family or friends instead of payday loans. It's probably embarrassing to ask, but you would save yourself a lot of money."

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  • 10. Oklahoma

    <strong>Median household income:</strong> $43,225 <strong>Population:</strong> 3,791,508 (23rd lowest) <strong>Unemployment rate:</strong> 6.2 percent (8th lowest) <strong>Percent below poverty line:</strong> 17.2 percent (16th highest) Oklahoma remarkably low unemployment rate of 6.2 percent for a state that is among the nation's poorest. The poverty rate of 17.2 percent has inched up each year from the 2008 rate of 15.9 percent. The low median income suggests a need for higher paying jobs as Oklahoma relies heavily on agricultural production. Also, government and military, which tend to be low-paying jobs, account for the highest percentage of jobs in the state. But Oklahoma is also a major producer of oil and gas. Growth in the energy sector, which tends to pay more, would help improve on Oklahoma's median income of $43,225. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 9. South Carolina

    <strong>Median household income:</strong> $42,367 <strong>Population:</strong> 4,679,230 (24th highest) <strong>Unemployment rate:</strong> 10.3 percent (8th highest) <strong>Percent below poverty line:</strong> 18.9 percent (9th highest) South Carolina has been hit harder than many states by the recent economic downturn. The state's sizable tourism industry has slowed as families cut back on vacations. The state's 10.3 percent unemployment rate in 2011 was well above the 8.9 percent national rate. South Carolina's poverty rate of 18.9 percent was the ninth highest in the U.S. and significantly higher than the national rate of 15.9 percent. Moreover, approximately 6.5 percent of families made less than $10,000 a year, the fifth highest proportion in the country. Meanwhile, only 2.9 percent of families made more than $200,000 a year, the sixth-lowest rate in the country. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 8. New Mexico

    <strong>Median household income:</strong> $41,963 <strong>Population:</strong> 2,082,224 (15th lowest) <strong>Unemployment rate:</strong> 7.4 percent (18th lowest) <strong>Percent below poverty line:</strong> 21.5 percent (2nd highest) Last year, 7.2 percent of families in New Mexico earned less than $10,000, a larger proportion than in any state but Mississippi and Louisiana. In addition, 21.5 percent of residents lived below the poverty line, well above the national rate of 15.9 percent. As a result of poverty and limited job benefits, many New Mexicans cannot afford health insurance. Last year, 19.8 percent of the state's residents were uninsured. This was significantly higher than the national rate of 15.1 percent even though the cost of healthcare in New Mexico was slightly below the national average. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 7. Louisiana

    <strong>Median household income:</strong> $41,734 <strong>Population:</strong> 4,574,836 (25th highest) <strong>Unemployment rate:</strong> 7.3 percent (16th lowest) <strong>Percent below poverty line:</strong> 20.4 percent (3rd highest) Louisiana is located at the center of the poorest region in the country -- the Deep South along the gulf coast. When Hurricane Katrina struck the region in 2005, the southern part of the state was decimated, particularly the city of New Orleans. Six years later, the city was still recovering with almost 17 percent of families earning less than $10,000 per year, more than triple the national rate of 5.1 percent. By many measures, conditions are actually getting worse in the state. As of 2011, for the first time since Katrina, more than one in five residents lived below the poverty line, only slightly better than Mississippi and New Mexico. Louisiana's median income fell by more than the country as a whole, falling more than $2,000 between 2010 and 2011. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 6. Tennessee

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  • 5. Alabama

    <strong>Median household income:</strong> $41,415 <strong>Population:</strong> 4,802,740 (23rd highest) <strong>Unemployment rate:</strong> 9 percent (18th highest) <strong>Percent below poverty line:</strong>19 percent (7th highest) In 2011, Alabama's median income was more than $9,000 below the nation's median income, while 6.4 percent of families lived off less than $10,000 a year -- higher than in all but five states. For the second year in a row, Alabama's poverty rate was 19 percent, remaining more than three percentage points above the national rate. Despite struggling with poverty, only 14.3 percent of Alabamians did not have health insurance last year -- slightly better than the national figure of 15.1 percent. It is likely that Alabama's cheap health care-the least expensive in the country for the fourth quarter of 2011-resulted in more insured residents.According to Gallup, since August of 2011 almost 23 percent of state residents reported not having enough money to buy food at least once. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 4. Kentucky

    <strong>Median household income:</strong> $41,141 <strong>Population:</strong> 4,369,356 (25th lowest) <strong>Unemployment rate:</strong> 9.5 percent (13th highest) <strong>Percent below poverty line:</strong> 19.1 percent (5th highest) Kentucky's unemployment rate of 9.5 percent, while not as high as states such as South Carolina and Mississippi, was well above the national rate of 8.9 percent. The employment rate will likely stay high in the near future as mining, a major industry in Kentucky, has declined in the past year due to a drop in natural gas prices. Severe poverty plagues the state, as 6.9 percent of families earned less than $10,000 in 2011, the fourth lowest of all states. Meanwhile, a mere 3 percent of Kentucky families earned more than $200,000 a year, the seventh-lowest rate in the country. Fortunately for those with lower incomes, Kentucky has the fourth-lowest cost of living in the U.S., including the second-lowest cost of living for groceries. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

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  • 2. West Virginia

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  • 1. Mississippi

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