So she took out one high-rate loan designed to help her cope until her next payday. Then another and yet another. Soon Bailey was struggling with seven payday loans she could not repay.

"You get desperate and you don't think about what you're doing," said Bailey, who ultimately filed for bankruptcy.

Consumer advocates in Utah say the state is failing to protect low-income Utahns such as Bailey from financial disaster caused by the payday lending industry.

"Just because people are poor and need cash quick doesn't mean they should be exploited," said Linda Hilton, a spokeswoman for the Coalition of Religious Communities, a multifaith advocacy group for low-income Utahns. "We want to see the state get out there and enforce the law."

Specifically, her group wants Utah's Department of Financial Institutions to ensure that payday lenders comply with a state law that requires them to properly disclose the annual percentage rate of the loans, which can top 400 percent. If consumers realized how much they are actually paying, they would steer clear of these loans, she said. Many lenders do not properly disclose loan terms and also fail to disclose the fact that borrowers have a right to rescind their loan agreements within 24 hours, Hilton said.

Her coalition also wants the state to crack down on lenders who fail to accept partial loan payments as required under state law.

Payday lenders say they provide a valuable service to people who need cash fast for a short time. They say they abide by the law, which has been amended in recent years to better protect consumers.

"Customer satisfaction is high," said Richard Rawle, president of the Utah Consumer Lenders Association, which represents the payday loan industry. "People just don't complain."

Bryan Blanchard, district manager for seven Check City outlets in Salt Lake City and one in South Ogden, said the APR at Check City's Salt Lake locations may be 417 percent, but that works out to only $8 for each $100 borrowed for one week.

"It's much cheaper than bouncing a check," he said.

He said many Utahns live paycheck to paycheck and use payday lenders when they have a crisis and need cash fast.

He takes issue with the coalition's accusations that the APR is not clearly posted or that customers are not informed of their right to rescind loans.

"Our rates are clearly posted and have been since our stores have opened," he said. And while Check City employees do not always inform customers orally of their right to rescind a loan, the right to do so always is disclosed in writing, he said.

"We're very honest, we're very open," Blanchard said.

His comments contrast sharply with what coalition members say they discovered last summer when they posed as customers and inspected 57 payday lenders in the Salt Lake area. Hilton said they found 65 violations of state law at 41 of the 57 payday lenders examined. Utah has 143 registered payday lenders with 326 offices throughout Utah.

Hilton's organization said the state has done little to follow up on the violations her team of volunteers uncovered.

Ed Leary, Department of Financial Institutions commissioner, disagrees.

He said his agency did follow up on the coalition's findings. But his examiners, who make unannounced visits to payday lenders once a year, found few problems.

"By and large, these companies are complying with state law," said Leary, who questioned the accuracy of the coalition's findings, made by a group of volunteers.

Leary likens payday lenders to convenience stores. Just as people are willing to pay more for a gallon of orange juice at a convenience store because it is easier than going to a grocery store, people are willing to pay more for the quickest and easiest loans around, he said.

"People who go to a payday lender know exactly what they are doing," he said, adding he believes the industry is generally adhering to state law "or we would be hearing more complaints."

The coalition, however, is not alone in questioning the growing payday loan industry.

This month, the Federal Deposit Insurance Corp. issued a warning about payday loans, saying they can lead to financial hardship for consumers who use them regularly or over long periods. The FDIC regulates 5,200 banking institutions, of which only 12 are engaged in payday lending.

The agency said it has placed more responsibility on banks that provide payday loans to ensure they are not trapping low-income people in loans they can never pay off.

Banks, for example, must stop granting payday loans to people who have had more than three months of such loans in a 12-month period. FDIC spokesman David Barr said problems often arise when people take out multiple payday loans over time.

Ben Moore of Salt Lake City agrees. Moore took out two payday loans and was able to pay them off. But he struggled to pay off a third loan and eventually said he owed $750 on the $300 he had borrowed. He said a collection agency that threatened him with legal action said he would have to pay $5,500 to settle the $300 loan if he didn't settle right away.

He called his parents, who agreed to bail him out. "I came up with $300 and my parents came up with the rest," he said. "I don't even go near those places now."

The FDIC is considering combining a "mystery shopping" program in partnership with traditional exams to ensure the payday loan industry is following the rules designed to protect consumers from the pitfalls of high-interest rate loans. FDIC examiners would continue to do surprise audits of payday lenders while an outside company would handle the mystery shopping, Barr said.

"With mystery shopping we can ensure that they aren't just saying, 'Yes, we have these rules in place' to examiners but saying something different to customers," he said.

But the FDIC only has oversight of banking companies that offer payday loans. In Utah, nearly all of the payday loan outlets are unaffiliated with depository institutions and come under state control via the Utah Department of Financial Institutions.

Leary won't be doing any undercover work until he is authorized to do so. He says his agency can only do what he is authorized to do under state law.

"We're not the bad guys here," Leary said. "We are complying with the law as we have it today. Convince the Legislature to empower us to do something else, and we'll do it."

lesley@sltrib.com

How a payday loan works

1. Consumers must have a checking account and a job to receive a loan equal to a portion of their next expected paycheck. Typically, consumers will write out a postdated check for the amount they will owe in principal and interest when their loan is due. For example, a consumer could write out a personal check for $108 to borrow $100 for one week until their next payday.

2. Loan proceeds can be provided by a payday lender in the form of a check, cash or an amount deposited into a checking account.

3. To repay the loan, the consumer can pay cash, agree to have their postdated check deposited or agree to have money deducted from their account. If they do not have the money to repay their loan when it is due, they can roll it over and pay more in financing costs.

Considering a payday loan?

Shop carefully. Look for the credit offer with the lowest annual percentage rate (APR). Consider alternatives such as a loan from a credit union or bank, a cash advance from a credit card company, an advance from an employer or a loan from family or friends. These may be cheaper sources of credit.

Talk to creditors. Ask for more time to pay a bill. Will they assess a late charge, an additional finance charge or a higher interest rate?

Look into overdraft protection. Banks and credit unions offer customers a line of credit that can be tapped when there are insufficient funds in an account to cover a debit card or check transaction. Inquire about the financing costs of using this credit line.

If you take out a payday loan, consider borrowing only as much as you can afford to pay with your next paycheck and still have enough to pay for basics such as food and rent.

- Source: Federal Trade Commission