TEXT OF INTERVIEW

Scott Jagow: They have names like "Check n' Go," "Get Instant Green" and, of course "The Money Store."

In 1995, there were something like 200 payday loan stores in America. Now, there are 24,000 -- more branches than Starbucks and McDonald's combined -- and payday loan centers aren't even legal in some states, so quick cash web sites are popping up.

Business reporter Stephen Franklin wrote about this issue for the Chicago Tribune. Stephen, why have these loan stores exploded in the past decade?

Stephen Franklin: Well, there was deregulation, banking deregulation. High interest rates lead a lot of states to withdraw the usury laws and then there were various court rulings that opened the way for interstate banking that opened the door for companies to suddenly realize they can do business across state lines.

Jagow: Besides the stores that you see in your neighborhood, now there are these online payloan sites. What's the difference between the two?

Franklin: Well, the difference is dramatic. Basically, you write a check and say, "If I don't come to pay this bill back, then you can cash my check." When you go to an online site, you do this electronically and they have the right to go into your checking account and take the money and you almost can't stop them. The other difference is you often don't know who the people are who you're dealing with. When you go into a payday loan store, you see a sign, you look at people. The problem with online is you have no idea and often times they hide.

Jagow: So given that, why on Earth would anyone grant a stranger who they've never met online access to their checking account?

Franklin: I think the answer is people want money and many of these payday loan sites look very legitimate and very decent and honest and my suspicion is that -- and the people I've talked to have said this -- is that you don't have to go to a store. You can do it at home or at work. There's no embarrassment to it and it's very fast.

Jagow: I've heard about these interest rates that can be 800 percent and you cite even as high as 2,000 percent in your story. How do those kick in? Is it automatically or if you don't pay within a certain amount of time?

Franklin: No. The minute you borrow money, you borrow at that rate.

Jagow: But if you're going online and you have a checking account with a bank, why would you need to get a loan from a payday loan site? Why couldn't you just get a credit line from your bank?

Franklin: That's the core of the issue. What you tend to find is that the people who use payday loans are people who have bad cash. They have no credit reliability and that's why studies have indicated that the bulk of people who use payday loans are working poor at low-moderate income.

Jagow: So they people who are doing this, do they actually know what they're getting into: a 2,000 percent interest loan?

Franklin: There are several ways of explaining it. I've talked to folks in different groups. There are those folks who walk into a store and look at a sign and the sign says, "Payday loans in this state are capped at this figure" and they figure, "Oh, this is a payday loan." Well, they're really taking a loan that's in a different category and they don't know what's happening. They don't realize that they're getting this high rate. There are other folks who realize that's the rate but they have no choice: there's an illness in the family, they're going to lose a car, they can't pay a hospital bill and they figure, "Whatever it is, I'll do that." And then there's a third group that just can't get out of a rut and they're sort of addicted to having money when they need it.

Jagow: So with the recession or threat of recession and the economy definitely in a downturn, are we seeing more middle-class people turning to these kinds of loans?

Franklin: That seems to be the case. Not all payday loan companies are publicly held. There are a small number and they seem to indicate that's the issue.

Jagow: Overall, between the federal government and the states, how well regulated are these payday loan sites and stores?

Franklin: Two big differences: where payday loan companies operate in the states have laws controlling them. Some states have absolutely no caps at all. When you're doing online, again, the situation becomes wildly different, because many states don't have the ability to track who goes online and often what people have told me is that the online companies are just too difficult to find. The only way they know about them are when they have complaints. The online companies often will say, "We are outside the United States" and they'll use small countries like Costa Rica or Grenada and therefore, they're outside of U.S. law.

Jagow: Well, payday loan stores don't have the best reputation, but obviously there's a market for this. Do these companies provide a service that is valuable?

Franklin: The payday industry will tell you that they serve people who can't get money. Consumers say it is predatory and usurious to charge someone 400 percent, 600 percent and that states should provide options -- credit unions, banks -- there should be ways of helping people get through this crisis without facing such onerous interest rates.

Jagow: Stephen Franklin, business reporter for the Chicago Tribune. Thanks for joining us.

Franklin: Thank you.