Reporting from Hartford, Conn. — Sen. Christopher J. Dodd (D-Conn.), who has won praise from consumer groups for taking on credit card providers over predatory lending practices, has collected thousands of dollars in donations from people affiliated with the so-called payday loan industry.

The lawmaker raised more than $44,000 from pawnshop owners and other businesses that provide high-interest loans, often to people with bad credit ratings, according to campaign finance reports.

And $44,000 is a pittance compared to the total Dodd will raise for his re-election.

“They [banks] say they’re covering your transaction as a courtesy,” said Wright, a self-employed businessman from Dayton, Ohio. “But they’re making a killing. I don’t want them to approve a debit when I don’t have enough to cover it in my account. This is a complete fraud.”

The Federal Reserve, which sets some banking rules, has been weighing new regulations for overdrafts for more than a year. They’re giving consumers the ability to comment until the end of March, with the anticipation that they’ll come out with final rules by this summer.

The rules are necessary, experts contend, because most banks now automatically enroll checking account customers in overdraft plans — and some banks won’t let them out. Bank of America, for example, doesn’t give consumers the option of dropping overdraft protection, a company spokeswoman says. If you have a checking account with the bank, you have it. Period.

With tidy lobbies that resemble bank branches, many outlets are in shopping centers anchored by Wal-Marts, grocery stores or other big retailers. Lenders say their typical customers include homemakers, firefighters and teachers, whose steady jobs qualify them for loans.

Yes, the typical customer is the typical American. 

Here’s the side bar to the article:  “How payday loans work.” 

Short of cash to fix her ailing BMW this year, Lunetta Blanks could have paid the bill with plastic. Instead, the federal investigator opted for a payday loan, shelling out $300 to pay off a $255 loan from the Advance America branch in her Silver Lake neighborhood.

Responding to rising consumer complaints, federal regulators Thursday adopted the most sweeping new rules for the credit card industry in three decades, including tougher restrictions on interest rate hikes and late fees.

The regulations, which take effect in July 2010, would block card companies from applying higher interest rates on existing balances. Late fees could not be charged without giving consumers at least 21 days to make a payment.

“The Center for Responsible Lending and other so-called consumer advocacy groups rely on shoddy research in stirring gender, racial and class sensitivities to make the case against payday loans, as they did during their successful crusades in Georgia and North Carolina to run payday shops out of business. Though they claimed that the elimination of payday loans saved Georgia residents approximately $154 million per year, that claim was refuted by a Federal Reserve report (pdf) indicating that consumers ended up paying more through overdraft bank charges and late fees. Critics of payday loans are content to ignore that the mass of payday borrowers are middle-income, educated consumers.”

Terri goes on to oppose “big brother” restrictions on payday lending. 

Despite high fees, people continue to use payday lenders with some frequency. Fool me once, shame on you; fool me eight or nine times, and clearly something else is up. It might be easy to accuse the firms of taking advantage of people and earning unfairly high profits, but if profits are so high, why hasn’t there been a mad rush by the very competitive banking industry to provide these services in underserved neighborhoods? Given my personal financial institution’s predilection for hidden fees and what would seem to be unfair charges for even simple services, I wouldn’t chalk it up to an ethics issue. 

He goes on to advocate competition as the best answer to payday lending.  That’s something the industry has said for years.  Competition drives prices down and serves consumers best.