No credit? No problem—until it’s time to pay up.

With a tidal wave of home foreclosures sweeping Illinois , some families are turning to payday loans to stay afloat, only to find they are making a bad situation worse.

More than 1,357 payday loan shops have cropped up across Illinois since the early 1990s. According to Americans for Fairness in Lending, Illinois is fifth in the nation for the number of payday lenders.

Payday lenders take a post-dated check as collateral for a loan that usually has to be repaid in full or in large chunks on the borrower’s payday for up to five months.

Consumer advocacy groups say using a check as collateral is where the problem begins.

“These loans are too focused on making quick money for the businesses, but they don’t even look at the credit history of the people they are lending to. If you have a check you have a loan,” said Sonya Delgado of the South Chicago Neighborhood Housing Services, “People are already in trouble in the first place. They're just getting loans to pay off other loans.”

A 2006 study by the Center for Responsible Lending reported that more than 60 percent of payday borrowers across the U.S. receive 12 high-interest loans a year.

Illinois payday loans can charge up to 403 percent interest annually – and that is why continually using the loans becomes a huge financial burden. 

According to the study, many Americans are using payday loans to delay the implosion of their family’s debt cycle.

Illinois passed a law in December 2005 and created a statewide database of borrowers that is supposed to keep Illinoisans from getting into the trap of taking out new payday loans to pay off old ones.

But some consumer advocates like Americans for Fairness in Lending say the law isn’t strong enough.

For these advocates, the mandatory seven-day waiting period between loans is too short and credit and housing counselors like Delgado have also pointed out that payday loans are only part of the problem.

“So many of the people I counsel are getting these loans because they have fallen behind on their house payment, or their insurance, or their gas bill, and then they shift the debt around on credit cards and end up at payday loan places,” Delgado said.

The president of the Chicago financial firm that owns Payday Loan Store, Bob Wolfberg, agrees that payday loans aren’t a long-term solution, but said they are an easy, short-term one.

“I think there’s a lot of confusion about these types of products,” Wolfberg said.

“We provide the most affordable convenient means for borrowing a few hundred dollars for a short period of time,” he said, “and I challenge anybody to come up with a way to do this that was more convenient, or someone would have done it successfully.”

Wolfberg said Illinois ’ laws are very effective in curbing repeat borrowers. Delgado disagrees.

“There should be an interest rate cap,” Delgado said, “Is there going to be a law against taking out loans? No, but there should be some responsibility to educate people. They need to get rid of the fine print. There needs to be huge print.”

Illinois law has limited the interest on payday loans to 15.5 percent ever since a fury in the mid-1990s over lending practices that caused leaders in 12 states to effectively ban the companies.

Delgado said that state laws have been helpful in lowering the astronomical fees that payday loan places were notorious for charging during their heyday. 

But Delgado insists that many people are too ashamed or uninformed to look for the resources they need to overcome their financial woes.

“People are getting loans where it’s easy, where someone else they know has been able to get a loan,” Delgado said, “That’s our No. 1 reason for foreclosure – embarrassment.”

The other problem facing state regulators is the high-powered cocktail of American ingenuity and the Internet.

Many payday stores have moved online, promising secure and confidential loans and avoiding state regulators.

One payday Web site says online loans are subject to state law but also notes that online loans “are assumed to have taken place in their office in Costa Rica.”

Whether online or on the corner, Delgado insists that financial literacy is crucial to getting people to recognize their limits and stay within them.

“If you go to a bank and try to get a loan and they deny you, you are not ready. We need to deal with these other non-bank lenders, but we also need to educate people,” Delgado said.

“We need to start with six graders and up.” she said, “If people knew what they were signing up for I just can’t believe that they would do it anyway."