The Pennsylvania Department of Banking is cracking down on Web-based payday lenders that want to do business with Pennsylvanians, giving them until Feb. 1 to get a state license and comply with rules on short-term consumer loans.

The state's Consumer Discount Company Act limits the annual interest rate and fees on short-term loans of up to $25,000 to 28 percent. That cap effectively would block online payday lending in the state by making the business unprofitable.

"The law is essentially outlawing payday lending," said Steven Schlein, spokesman for the Consumer Financial Services Association, a trade group for payday lenders. He declined further comment.

Traditional payday stores, which had operated in Pennsylvania for years, disappeared over the last several years under pressure from state and federal regulators. But there has been a proliferation of online-based operators skirting regulations because they do not have a physical presence in the state.

The banking department's announcement two weeks ago that it would begin targeting online payday lenders -- which, like traditional payday stores, charge fees that can translate into annual interest rates of 1,000 percent or more -- was praised by consumer advocates.

"This will do a lot to protect consumers in Pennsylvania," said Kerry Smith, an attorney with Community Legal Services in Philadelphia. "Payday lending is really a terrible debt trap," she said.

A 2006 study by the U.S. Department of Defense found that the average payday loan customer ended up spending $834 in principal and interest to pay back a $339 loan.

Although borrowers agree to repay the loans in one to two weeks with their next paycheck, most end up "flipping" them for additional terms, with fees that can quickly exceed the amount borrowed and trap people in a cycle of indebtedness.

Industry supporters say payday lenders provide a needed source of emergency cash for people who have no where else to turn.

Ms. Smith disagreed, saying the loans prey on low-income borrowers.

"Most people ... if they don't have $200 today, won't have $200 plus $50 their next pay check," she said. "So what happens is people renew the loan, and do this repeatedly. I would say this isn't a good thing."

Some observers point out that it will be hard for the banking department to police online payday operators, many of whom are based overseas or could be difficult or impossible to track down.

"We realize there will be challenges to enforcing this," banking department spokesman Dan Egan said. "But that doesn't dissuade us from at least trying. Hopefully we can make an example of some companies, and it will persuade others to get out of the business."

There are about 3,000 Web-based payday lenders, Mr. Egan said. The department did not know how much business they were doing in Pennsylvania.

Come Feb. 1, the department will pursue consumer complaints and search the Internet for perpetrators, which can be assessed penalties of up to $10,000 per violation, he said.

In late 2006, the Pennsylvania Credit Union Association launched its Better Choice program as an alternative to payday loans. Participating credit unions offer 90-day loans at an annual interest rate of 18 percent. Borrowers must be a member of the credit union to qualify, however.

The program "is not a magic bullet," Mr. Egan acknowledged. Still, that doesn't mean payday lenders should be allowed to take advantage of desperate borrowers, he said.

"There are so many people who get into these loans and end up paying in fees much more than they borrowed. It is hard to see the benefit in that."

For a list of credit unions in the state that offer Better Choice loans, visit www.pacreditunions.com.