Nine States Where Lenders Take Your Paycheck

9) Texas
> Payday loan usage rate: 8%
> Number of payday lending storefronts: 1,800
> Pct. below poverty line: 17.9%
> Median income: $48,615

Like several states that Pew classifies as permissive, payday loans in Texas have a minimum term of seven days — a relatively short period. Without regulation that permits repayment in installments, the loan can be due in full quickly. As a result, the borrower may be unable to pay back the loan, creating a cycle of further debt. The public interest group Texas Appleseed advocates for greater regulation for payday and small-dollar loans. The group argues that “when these high-cost loans compound borrowers’ economic distress, whole communities are impacted.” According to the most recent U.S. Census data, close to 18% of families in Texas live below the poverty level — the fifth-highest percentage of the 32 states studied — making them more susceptible to predatory lending practices by payday lenders.

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8) Kentucky
> Payday loan usage rate: 8%
> Number of payday lending storefronts: 781
> Pct. below poverty line: 19%
> Median income: $40,062

Kentucky attempts to regulate payday loans by limiting the number of loans an individual lender can extend to a customer. Borrowers cannot receive more than two payday loans at the same time from the same lender that together exceed $500. However, information from an electronic database of payday lenders shows that it is failing to adequately protect consumers, according to an editorial in the Lexington Herald-Leader. Despite this, Kentucky’s legislature rejected a bill to cap payday loan interest rates at 36% last year. According to Jason Bailey, Director of the Kentucky Center for Economic Policy, payday lending is a destructive force. In an interview with 24/7 Wall St., he explained that the industry relies on repeat borrowers, and it hurts the ability of families to build assets or become self-sufficient. Among all states for which payday loan usage data are available, Kentucky has the highest percentage of families living below the poverty line, at 19%.

7) Kansas
> Payday loan usage rate: 8%
> Number of payday lending storefronts: 413
> Pct. below poverty line: 13.6%
> Median income: $48,257

Payday lending is a big business in Kansas. More than 1 million payday loans were made to Kansas consumers, totaling $432.7 million in 2010, according to an analysis of financial institutions performed by Kansas Legislative Research Department. It is also a growing business. In 1995, only 36 locations offered payday loans. The Center for Responsible Lending counted more than 400 payday lending storefronts in Kansas, and they earned $64.2 million per year in loan fees in 2010.

6) Indiana
> Payday loan usage rate: 9%
> Number of payday lending storefronts: 456
> Pct. below poverty line: 15.3%
> Median income: $44,613

Indiana prohibits payday loans of more than $550. The state also requires that lenders limit finance charges on larger loans, so that lenders can only charge up to 15% on the first $250 of a loan, up to 13% on amounts between $250 and $400, and up to 10% on amounts more than $400. Despite these caps, the interest rates remain staggering. According to Pew, fee caps of just 10% of the principal are sufficient to generate an annual percentage rate well in excess of 100%. People without a college degree in the U.S. are 82% more likely to use a payday loan. As of 2010, just 22.7% of Indiana residents had a bachelor’s degree. This was the third-lowest rate among all states for which Pew provided survey results.