KOKOMO, Ind. -- A year and a half ago Doris Rude, a taxi driver who is partly disabled by a herniated disc, was living at the edge of her income of $300 a week and had just $5 in the bank. Then she received a $1,900 hospital bill. With poor credit and no money, she turned in desperation to a new, fast-growing American institution: The payday loan company.

For a fee of $30, the company agreed to advance her a two-week loan of $100 against her next paycheck. To obtain the loan, she wrote the lender a check for $130 that the lender agreed to hold until her next payday. With the $30 fee, the lender was charging her an interest rate that consumer advocates say is 780 percent a year.

But two weeks later, with no change in her living expenses, her check was sure to bounce. So the lender let Rude renew the loan for another two weeks, for another $30 fee. Soon she was bounding from one payday lender to another, six in all, borrowing from the next to pay the accumulating fees of the others. Rude had fallen into a trap that regulators worry is an increasingly common one, not just for lower-paid workers like Rude but for higher-salaried employees as well. An unexpected product of the nation's most prosperous peacetime decade in this century, payday lending companies are sprouting up all over the country, having increased to nearly 8,000 today from 300 seven years ago. Although plentiful in big cities like New York and Los Angeles, they have become most visible in places like Kokomo, Springfield, Ohio, Champaign-Urbana, Ill., and Cleveland, Tenn. Ten have opened in Kokomo's malls and along seedier stretches of town. Bearing names like Check Into Cash, Check `n Go and Fast Cash, payday lenders grant loans to workers against their next paychecks. In return, the companies charge a fee, typically $15 to $35. At annual rates, the fees normally exceed 300 percent and 400 percent and in some cases they reach four digits. The lending has spawned at least a dozen national chains. The biggest, Ace Cash Express in Irving, Texas, has around 900 stores. Its revenue last year -- what it collects in loan fees -- was $100 million, twice the level of 1996. Check Into Cash, in Cleveland, Tenn., reported that its revenue had jumped to $21 million in the first six months of 1998 from $10 million three years ago and $1 million five years ago. In much of the country, these companies escape the routine scrutiny and regulation faced by banks, finance companies and pawn shops. As of late last year, the Consumer Federation of America reported that 19 states, including all of those in New England, as well as Pennsylvania, Virginia and Texas, prohibited payday lending, most by limiting annual, small-loan interest to less than 40 percent. But it said the 31 other states, including New York and New Jersey, condoned it by law or by the absence of law. The lenders say they are providing a vital service. As commercial banks have shunned the poorest borrowers, in part by raising the minimum amounts they will lend, people who need small sums to get over a hump, like paying for a medical prescription or buying tires for a car, have been cast aside. These include people who are unable to get credit cards or who have reached or exceeded their cards' credit limits. But worker advocates consider the interest rates exorbitant. "I know of loan sharks in New York who wouldn't charge this kind of interest," said Gary L. Calhoun, a lawyer here who provides legal services for members of the United Automobile Workers. State Rep. Richard Bodiker, a Democrat whose bill this year to regulate the lenders fell to intense industry lobbying, calls the fees "in excess of what usury laws consider loan-sharking." Robert C. Rochford, deputy counsel of the National Check Cashers Association, an industry trade group, called such charges spurious."Loan-sharking involves coercive tactics to collect the debt," he said. "No major direct deposit provider has been convicted of that." One reason for their growth is people's comfort with debt. The nation's savings rate, the percentage of people's disposable income that is saved, dropped to 0.5 percent last year and to nothing at all by earlier this year from 6 percent a decade ago. People are spending more than ever and borrowing more than ever. "We know there's a pretty sizable group of folks whose credit cards are maxed out," said Mark B. Tarpey, a supervisor in the consumer finance division of the Indiana Department of Financial Institutions. With payday lenders around, he said, "they don't have to tell the boss they need a cash advance. They don't have to give up their TVS and furniture. They don't have to run a credit check." Another reason is a level of unemployment, at 4.2 percent, that economists used to call unattainable. To succeed, payday lenders need customers with bank accounts and regular checks, in particular paychecks, and these days, just about every able-bodied adult receives one. Under such conditions, said Rochford, the deputy counsel for the check cashers association, payday lenders' revenues are poised to grow to $1.44 billion this year from $810 million last year. Payday lending, Rochford said, "exists because there's a need for it." A short-term deferred deposit loan, the industry's preferred term, helps a worker through an emergency and is cheaper than bouncing a check. Most banks do not make loans for less than $1,000, he said, and pawning is embarrassing. Borrowers like a payday loan, Rochford said, because "it is private. It is quick. And they don't need a lot of documentation." The fees cover loans that turn sour and the cost of employees to process loans, he said. Kokomo, with a population of 45,000 some 50 miles north of Indianapolis, may be a case in point. A throbbing, steel and asphalt city of immense new Daimler-Chrysler and Delphi-Delco automobile component factories, Kokomo is fertile terrain for payday lending. Strapped by bad credit and unmanageable or unexpected expenses, people here used to go to pawn shops for loans. But of three pawn shops here two years ago, one has closed, and another, Bob's, passed up renewing its license this month. Now people go to the city's new payday lenders. Unemployment, which has exceeded 20 percent in Kokomo in recessions, was just 1.4 percent in March, according to the latest survey by the Kelley School of Business at Indiana University. About 20,000 people, roughly 40 percent of the area work force, are employed by automotive companies. They earn $50,000 to $60,000 a year and are the new lenders' biggest customers. The payday lenders here approve most loans within 10 minutes."No Credit Check, Instant Approval," Easy Money's flyer promises. "The fastest way to payday," read the banners on the walls of Check `n Go. For this service, some states specify a maximum fee of $15 on a one- or two-week loan of $100 or $200. In Indiana the limit is $33.At $33, the annual rate on a two-week $100 loan is 858 percent. And as borrowers amass loans, taking new ones to pay the fees on the others, the fastest way to payday becomes a fast way, too, to garnished wages and bankruptcy.

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