With its quaint downtown and tree-lined streets, the unpretentious city of Cleveland, Tenn., in the foothills of the Great Smoky Mountains seems an unlikely epicenter for a $50-billion-a-year financial industry.
But this is where W. Allan Jones founded Check Into Cash, the granddaddy of modern payday lenders, which cater to millions of financially strapped working people with short-term loans -- at annualized interest rates of 459%.
"It's the craziest business," said Jones, 55, a genial homegrown tycoon who founded his privately held company in 1993. "Consumers love us, but consumer groups hate us."
In years past, a worker might have asked his employer for an advance on his paycheck. Now, with a driver's license, a pay stub and a checking account, he can walk into a typical payday loan store, postdate a check for $300 and stroll out with $255 in cash after a $45 fee.
No muss, no fuss, no credit check.
Americans now pay as much as $8 billion a year to borrow at least $50 billion from payday lenders, by various estimates.
That's more than 10 times the level of a decade ago, according to a report by the California Department of Corporations. In California alone, customers now borrow about $2.5 billion a year from payday lenders, the report said.
Nationwide, the number of payday outlets has exploded from zero in 1990 to some 25,000 today, running the gamut from mom-and-pop outfits to national chains
Advocacy groups have long bashed payday loans as debt traps for the working poor, accusing lenders of baiting their customers with easy cash -- and then hooking them into an endless cycle of repeat borrowing.
As the economy has worsened, however, payday loans have increasingly become crutches for those higher up the economic scale, said Elizabeth Warren, a Harvard law professor who chairs a congressional watchdog panel on the $700-billion bailout for the financial system.
More and more middle-class families use the loans "to put off the day of reckoning," she said: "Too many families live with no cushion, so when something goes wrong they turn to payday lenders."
Payday loans aren't available only on payday. The term derives from the fact that they are designed to help borrowers get from one paycheck to the next, usually about two weeks.
Sheryl Loebig is a single mother of four who works as a paralegal for the nonprofit Legal Aid Society of Orange County.
After her aging Chevy Blazer died in early 2006, she cobbled together six payday loans for a $1,500 down payment on a new Toyota Corolla. She had no other credit options, she said, because medical bills had driven her into bankruptcy.
Two years later, the Anaheim resident had racked up $7,000 in fees to renew her loans every two weeks -- but still owed more than $1,000.
"I am desperately trying to pay them down, but I just can't," said Loebig, 47, who earns $33,000 a year. "I don't drink. I don't party. I don't go out. I don't have a cellphone. We don't have cable or any of the other amenities. I don't spend much on anything, but I still have nothing left over to pay the loans down."
Loebig said she was determined to repay the loans, "no matter what." But with take-home pay of $1,800 to $2,000 a month and rent, child care, a car payment and other expenses, she said, she was lucky to cover the fees on her loans, much less pay them off.
She had come to dread her own payday, since that meant spending the evening driving around Orange County, writing checks to her lenders.
"It's so bad, I can't sleep the night before, just thinking about it," she said.
Since 2006, as incomes have stagnated while costs of gasoline, mortgages and groceries have risen, more Southern California payday lenders have opened in suburban areas, according to a Times analysis of state records.
In the last year, outlets have sprung up in Woodland Hills, Simi Valley, Lake Forest and La Quinta, near Palm Springs.
With tidy lobbies that resemble bank branches, many outlets are in shopping centers anchored by Wal-Marts, grocery stores or other big retailers. Lenders say their typical customers include homemakers, firefighters and teachers, whose steady jobs qualify them for loans.
Short of cash to fix her ailing BMW this year, Lunetta Blanks could have paid the bill with plastic. Instead, the federal investigator opted for a payday loan, shelling out $300 to pay off a $255 loan from the Advance America branch in her Silver Lake neighborhood.
"I'm trying to pay off my credit card, so I'd rather just pay them than put it on the card," Blanks said. "It's pretty high, but when you need the money, you need the money."
As an alternative to payday lending, some credit unions and other lenders have begun offering short-term, small-dollar loans at annual rates as low as 12%. But many borrowers are unaware of such options.