When falling on hard times, many of Chicago’s poorer residents turn to payday loans when no other sources of income are available. But if Sen. Dick Durbin and consumer advocacy groups have their way, the entire payday loan industry could go the way of dinosaurs.

Durbin introduced the “Protecting Consumers from Unreasonable Credit Rates Act” which, if passed, will limit the amount of interest on all consumer credit products, including short-term loans, to 36 percent annually. Currently, payday loans typically charge annual interest rates of 400 percent or higher.

“It would put us out of business,” said Bob Wolfberg, president of PLS Financial Services, a Chicago-based company that owns and operates the Payday Loan Stores.

That’s because, Wolfberg said, if Durbin’s legislation passed, it would reduce their profits by 90 percent, making it impossible to stay afloat. PLS Financial currently employs about 3,000 workers who would be laid off, he said.

Payday loans, which can also be referred to as cash advance loans and check advance loans, are short-term loans that consumers can borrow at high interest rates. The lenders, who typically do not require a credit check, allow customers to borrow the money against their next paycheck and either automatically debit a checking account or take a post-dated check for the amount borrowed.

According to the Illinois Attorney General’s office,  payday lenders charge fees of about $15 to $50 for every $90 borrowed in a pay period. If the borrower chooses to extend the loan beyond one pay period, they are charged the fees again, in addition to the interest.

But Wolfberg said payday loans are meant to be short-term solutions for customers and that using an annual percentage rate to judge them isn’t fair.

“We get attacked for having high annual rates, but we don’t give annual loans,” Wolfberg said. “An annual percentage rate is not an accurate measure of what we are doing.”

Durbin is not the only critic of the payday lending business, however. Lynda DeLaforgue, co-director of the public interest group Citizen Action Illinois, said payday loans get consumers, particularly low-income ones, trapped in a cycle of debt that can be difficult for many people to get out of.

Illinois Attorney General Lisa Madigan’s office agrees.

“Consumers should exhaust every possible option before turning to payday loans in a financial emergency,” said Natalie Bauer, spokesperson for the attorney general’s office, in an e-mailed statement.

Although payday loans provide quick and easy credit to people who may need it, they are extremely expensive and can trap borrowers in a cycle of debt, Bauer said.

Chicago resident Carole Johnson took out a payday loan from the Payday Loan Store, 337 S. Franklin St., and made her final payment on March 13 after having the loan for about one month, she said.

“I just needed a quick loan for a short time,” Johnson said. “I [had other options], but it would’ve taken longer and been a big hassle.”

Johnson, who works as a claims assistant, said the interest rate on the loan was fair, but only because she didn’t let it go too long before paying it off.

“The way the product is set up, people can’t pay off this loan in a very short amount of time,” DeLaforgue said. “The model in itself is inherently bad for people who are low-income because you can never come up with that $300 or $400 of cash up front to pay off that loan in such a short amount of time.”

Bauer said consumers should consider other options such as taking out a small loan from a credit union, borrowing  money from family or friends or even taking a cash advance on a credit card instead of resorting to a payday loan.

Bauer said when consumers feel they have no other choice and must get a payday loan, they should insist on getting a “real payday loan,” written under the Payday Loan Reform Act (PLRA), which gives consumers some protections for escaping the debt cycle, like an interest-free repayment plan option.

But payday lenders have found a way around the PLRA:  The act defines a payday loan as a loan for less than a 120-day period.

“The industry just created a new product-a loan for anything over 120 days so they get around having to adhere to the consumer protections under the PLRA by putting these longer term loans out there,” DeLaforgue said.

DeLaforgue said the payday lending industry also tends to target the most vulnerable of consumers, like single mothers and the elderly, and that they are disproportionately located in poor and minority communities.

“You’ll often see senior citizens getting these loans off of their Social Security checks,” DeLaforgue said.

Durbin, along with New York Sen. Chuck Schumer, also proposed another bill recently that would create a new federal agency to oversee consumer credit and regulate the types of consumer financial products on the market.

“The payday loan model is set up to trap people,” DeLaforgue said. “And yes, there are people who need and want credit, but it doesn’t necessarily mean we have to give them a bad credit product.”

DeLaforgue said there are better solutions out there for consumers.

“If you look at organizations like the Northside Federal Credit Union, they have set up a good program for lower-income people to take out emergency loans if you’re a member of the credit union,” she said.

“They do it at a much lower and responsible rate so people don’t get into these debt cycles they just can’t get out of.”

If the payday loan industry were to go under because of Durbin’s bill, there would be a significant need in the community that would no longer be met, Wolfberg said.

“Nobody offers loans that are more affordable or more convenient than we do for a short period of time,” Wolfberg said. “We make millions and millions of loans every year, so one would have to ask [if we go out of business], where will these people go?”

Johnson said she thinks that Durbin’s proposed law is a good thing, even though it could potentially put places like the Payday Loan Stores, like the one she borrowed from, out of business.

“It’s a good idea to pass the law because it’s hard enough as it is during this recession,” Johnson said.  “And if you need to borrow $100 or $200 because of an emergency, it’s not fair to end up paying $400 or $500 because you can’t pay it back right away.”

Though receiving a payday loan did help her out this time, Johnson said she hopes to never have to use a payday loan again and she won’t  mind seeing them go out of business.

“I mean, they are all over the place but they don’t really help anybody,” Johnson said.