A lawsuit filed last week in Philadelphia Common Pleas Court should shine a harsh light on a business that preys on the poor — and makes lots of money doing it. So-called payday lending ensnares the working poor, and plunges them into cycles of ever-deepening debt. The process involves a person using his or her next paycheck as collateral for a short-term loan, at an above-market rate, that on an annualized basis can be 400 percent or more.

Quite often, borrowers quickly find themselves in a vicious cycle of borrowing against their next paycheck, then having to borrow again — against the next paycheck — to pay off the interest on the earlier loan.

One woman, who is part of the lawsuit, borrowed $300 for nine days last June. Her interest charge for that loan was $60. Unable to repay that first loan, she took out additional payday loans. At this point, she has a $400 loan, for which she is required to repay $890 in March.

Payday lending is rapidly expanding. It is estimated that the number of payday lenders in the U.S. has doubled since 2000, capitalizing on the economic slowdown and associated financial hardships endured by many low-income workers. It's been estimated that the 100 million payday loans made in 2003 produced $6 billion in interest and fees.

The news coverage of the Pennsylvania lawsuit is an opportunity to expose the practice and it's blatant abuses of people can ill-afford the astronomical interest rates, but have no choice. Payday lending in Pennsylvania should be either severely restricted — or banned, as it has been in Georgia.

In the state legislature, there are proposals to do both. And, as usual with Harrisburg politics, the story comes with a few twists.

The House has passed a bill permitting the practice, but imposing limits on interest rates. In the Senate, a bill sponsored by Sen. Vincent Fumo, D-Philadelphia, would make payday lending illegal.

Whether or not it has influenced his position on the practice, Fumo, is chairman of a bank holding company, PSB Bancorp, Inc. in Philadelphia. While this could be seen as a potential conflict of interest, most commercial banks are not interested in such short-term loans.

Further complicating the picture in Harrisburg is the fact that the owners of the company targeted by the Philadelphia lawsuit, Cash Today, have made political contributions to state officials. Owners David and Larry Frascella, along with a spouse, reportedly gave $41,5000 in political contributions through the first nine months of this year. Those contributions include $10,000 to Gov. Ed Rendell.

Rendell, for his part, is said to favor the House bill providing for heightened regulation. But after a critical editorial in the Philadelphia Inquirer, Rendell wrote a letter to the editor saying he supports a ban on payday lending, but added that if the legislature does not produce a bill that bans the practice, he will sign a measure providing tougher regulation.

Consumer advocates have noted that payday lending is highly profitable and that the industry can afford to hire an army of high-priced lobbyists to limit — or block — any real restrictions on their predatory business practices. An Inquirer story noted that the son of Philadelphia mayor John F. Street is listed as representing the payday lending industry, as is one of Harrisburg's most well-connected and powerful lobbying firms.

On the surface, payday lending, involving annual interest rates of 400 percent, is already in violation of a state law capping interest rates at about 24 percent. But as an indication of the industry's ethics, Cash Today owner David Frascella argued before the state Senate banking committee earlier this month that his company does not operate under Pennsylvania law because the short-term loans made in his Philadelphia branch locations actually originate with a company in Delaware, where there are no limits on interest rates.

That's an absurd argument by an industry that preys on the misfortunes and economic ignorance of often desperate people. Continued skirting of state law should end.

Payday loans should be illegal, at least with usury-level interest rates of 400 percent or more.

— J.L.W.III