The weak economic recovery might be making it harder for small businesses and families to get loans. But there's at least one unlikely group that's not having problems securing financing: payday lenders.

That's the conclusion of a new study backed by a community group that blames the nation's largest banks for the growth of the payday loan industry.

Thanks to billions of dollars worth of financing from giant banks, the payday loan industry is booming and poised for expansion--even as consumer groups and government officials aim to rein in the high-cost loan products, says the study.

The report was issued Tuesday by community group National People's Action and watchdog group Public Accountability Initiative.

"While small businesses and individuals have struggled to get affordable loans in the wake of the taxpayer bailouts, payday lenders have received new and amended credit agreements from Wall Street," says the report. "Instead of wading further into the business of predatory payday lending, big banks need to stop financing these lenders and instead lend to businesses and individuals that create wealth, rather than destroy it."

The study notes that payday loan companies depend heavily on credit agreements and other financing vehicles from banks such as Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC). It singles out Wells Fargo, in particular, saying the San Francisco-based bank finances more payday lenders than any other big bank, providing credit to lenders such as Advance America Cash Advance Centers Inc. (AEA) and fueling the growth of the industry.

A Wells Fargo spokesman told Dow Jones on Tuesday that while the company is very selective, it doesn't impose barriers when it comes to considering new credit customers. He added, though, that Wells Fargo puts payday lenders and check-cashing companies through higher levels of scrutiny before providing financing.

"Every responsible business that complies with the law has equal access to consideration for credit," said Wells Fargo spokesman Gabriel Boehmer. "That said, we exercise strict due diligence with these customers to ensure they, like us, do business in a responsible way."

Meanwhile, the study finds that banks are starting to offer high-cost loans on their own, which suggests that the payday loan business is ripe for growth, says the report. It adds that new "checking advance" short-term loans being offered by banks can carry extremely high interest rates of up to 120%.

The report, dubbed "The Predator's Creditors," seems to be a way to shame banks into thinking twice about their ties to the payday loan industry. It includes diagrams illustrating ties between Wall Street executives and payday lenders and a table that lists recipients of Troubled Asset Relief Program cash that have provided financing to payday lenders.

"Ultimately, the big banks that borrow at near-zero interest rates from the Federal Reserve are not far removed from the payday companies that lend money at 500%," the report says.

Consumer groups have routinely attacked payday loans--the high-cost, quick loans repaid from a borrower's paycheck--as debt traps that simply hurt lower-income Americans by hitting them with hefty fees and extra charges. And the Obama administration recently unveiled a new initiative aimed at helping taxpayers avoid turning to high-cost payday and tax-refund loans.

Still, Steven Schlein, a spokesman for payday lenders group Community Financial Services Association, slammed the report for painting "a misleading and distorted" picture of the relationship between banks and payday lenders.

"Payday loans companies are in fact good creditors because their customers are good creditors," he said, adding that 95% of payday loans are repaid. "Payday loans are a valuable service to millions of American consumers that have short-term financial needs."

Although Schlein says payday lenders are "highly regulated," the report says new laws are needed. It recommends that lawmakers institute a national cap on payday loan interest rates in wake of failed congressional efforts earlier this year.

Still, the report says a cap will be tough to institute. "The payday industry's political clout has allowed it to fight common sense reforms that would have curtailed their ability to operate," it said.

-By Maya Jackson Randall, Dow Jones Newswires; 202-257-6313; maya.jackson-randall@dowjones.com
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