Payday loan centers in Spokane and throughout Washington state have declined in number since more stringent regulation of them went into effect at the first of the year.

As of mid-June, 46 payday loan outlets were operating in Spokane County, down from 56 a year earlier, and 556 payday loan locations were operating statewide, down from 698 a year earlier, says Patrick Woods, a spokesman for the Washington state Department of Financial Institutions.

DFI is hearing from the payday loan industry that tighter restrictions on its lending practices have contributed to most of the closures, Woods says.

Spartanburg, S.C.-based Advance America Cash Advance Centers Inc. has closed three Spokane-area outlets, DFI says.

Cash Advance plans to close 25 more outlets in Washington state before the end of this year, says Jamie Fulmer, a spokesman for that company. Fulmer says he can't disclose whether any of the six remaining Spokane-area Cash Advance outlets are among those that will be closed.

"The last thing we want to do is leave the state altogether," he says. He adds, however, "Washington has made it harder for us to meet our overhead costs."

Payday loans are small loans issued for a fee; the lender agrees to hold a post-dated check for a period of up to 14 days.

Statewide, $1.3 billion in payday loans were made in each of the last two years. Woods says it's too early to tell if there's been any drop in total payday lending this year because payday loan companies don't have to report their 2010 loan volumes until next April 15.

The new rules limit fees to 15 percent of the amount of loans up to $400 and 10 percent for loans that exceed $400. They also cap the total loan amount for each borrower at the lesser of 30 percent of the borrower's monthly income, or $700.

Gene Fitzpatrick, vice president of lending for Spokane Valley-based Numerica Credit Union, says the payday loan restrictions disrupt the business model used by storefront payday loan outlets.

Under the new regulations, "They can only do so much in terms of interest and the number of loans," Fitzpatrick says. "It's a labor-intensive industry. They still have to have people at the counters."

Despite the decrease in payday loan outlets, Fitzpatrick says he hasn't noticed an increase in demand for a short-term, small loan product that Numerica Credit Union began offering in 2005 to serve that niche market. To qualify, borrowers must be members of the credit union with a checking account and have stable finances and income, he says. The fee for such a loan is $12 per $100 borrowed, and terms can be extended to 45 days. Credit unions and banks aren't subject to payday loan regulations, he says.

Numerica is one of a number of credit unions that offer such short-term loans for their members.

Under the new regulations, the maximum fee allowed for a 14-day loan is equivalent to an annual interest rate of 391 percent. The regulations are intended to protect consumers from falling into a cycle of debt in which they have to take out another payday loan to pay off a previous loan, while also allowing companies to continue to offer payday loans within certain limits, Woods says.

A borrower now is limited to a maximum of eight loans in a 12-month period. The regulations also prohibit borrowers from taking out multiple loans from different lenders and set up a database to alert lenders when someone tries to borrow too much or too often.

Fulmer contends that the restrictions force consumers to look to other, potentially more costly alternatives, including overdraft fees that often are higher than payday loan fees.

"It opens the floodgates to unregulated offshore Internet lenders," Fulmer asserts.

He says the restrictions also might drive borrowers across state lines for payday loans.

In Idaho, which allows payday loans of up to $1,000 and doesn't restrict finance charges, Cash Advance operates six outlets, including one in Post Falls and one in Coeur d'Alene. Fulmer says the North Idaho outlets likely will see a rise in business from Spokane-area residents.

"When other states have eliminated payday loan centers, outlets in bordering states have picked up," he says.

Other payday loan companies that have closed outlets here include Irving, Texas-based Cottonwood Financial Ltd., which does business as The Cash Store; Cincinnati-based Southwestern & Pacific Specialty Finance Inc., which does business as Cash & Go; and Seattle-based Moneytree Inc.

Gary Singer, owner of Dutch's Inc., a pawnshop at 415 W. Main downtown, says his business benefits when payday loan outlets close, because they are competing for some of the same clientele.

"Banks ignore people when they need to borrow $50 to $100," Singer says. "My loan balance is higher than last year. It's a consequence of the lack of payday lenders."

The payday loan regulations don't apply to pawnshops, which deal in loans backed by collateral.

"It wouldn't make sense to limit the number of collateral loans," he says. "Nobody is trying to collect on them, and there is no mark against someone's credit rating if they don't pay."

DFI's Woods says payday loan companies are required to notify the state and submit their plans for collecting on outstanding loans when they close outlets, although some of them fail to do so.