::lumos::

If we limit the analysis to customers who took out at least one loan ten or more months 1995, an increasing number of check cashers began to enter the business. At the same time, in a small number of states without restrictive usury laws, some entrepreneurs opened "monoline" stores that specialized in payday lending, rather than combining this service with commercial check cashing. The evidence indicates that, by 1995, the industry was growing very rapidly in many states, and it sustained this growth through 2001. Wisconsin's Department of Financial Institutions, for ex-ample, reports that in 1995 there were seventeen payday loan of-fices in the state. In early 2003, the licensee list on the department's website listed 278. The North Carolina Office of the Commissioner of Banks reported that there were 307 payday loan offices in that state in 1997. By year-end 2001, there were 1,204. The rapid spread of payday loan offices caught the attention of journalists.

My own search for news articles, under the "business and finance" category of Lexis-Nexis, using the term "payday loan" in the article title or first paragraph found that before 1996 there were no such articles and in 1996 there were two. In 1999, there were III. By 2002, payday loan offices were found in all but a few states. The exact number nationally is not known because many states do not require the lenders to hold licenses or do not report the number of licensees. In 2001, an investment banker who helps finance the industry estimated that there were 10,000 payday loan offices nationwide, about half of which also function as CCOs. About 4,400 of these belonged to firms that operate 200 or more offices across multiple states. In states where usury laws are not restrictive, many payday lenders operate as state-licensed lenders.' But some, including nearly all in states with restrictive laws, function as agents for banks that are in states with permissive usury rules.

Under such arrangements, a customer completes a loan application in the payday lender's office, but the out-of-state bank approves and books the loan. The bank may subsequently sell a substantial share of the loan back to the lender or kick back a substantial share of the interest payments on the loans. In exchange, the lender agrees to reimburse the bank for most of its associated loan losses. Payday lenders argue that, under such arrangements, the relevant usury ceiling is that of the state where the bank is because, like banks that offer credit cards across state lines, the bank can "export" its interest rates to customers in other states.