NEW YORK ( MainStreet) — Ellen Holt has been securing pay day loans for years, but she wasn't aware that some of the issuers were illegal companies. After falling behind on payments to one payday lender, she was threatened with a lawsuit. "I asked an attorney friend to send a cease and desist letter," said Holt. "Turns out they were an illegal company, and I had overpaid the principal."

The North Carolina resident said threatening phone calls suddenly stopped.

"If the company is illegal, there is nothing they can do but threaten you," Holt told MainStreet. "Legal payday loan companies however can sue you and garnish your wages. You need to find out for sure what kind of loan your dealing with."

On average, the industry makes $40 billion in loans and collects $6 billion in finance charges from borrowers each year, according to the Consumer Federation of America (CFA) in Washington, D.C.

"Borrowers should steer clear of online payday loans," said George Janas, president of ConsumerDebtCounselors.org. "They are the highest risk and generally are not easily contacted by phone. Payday lenders that operate with a physical location are safer options."

Currently, there are about 22,000 storefront payday loan stores nationwide, according to CFA. And more than half of all payday lenders storefronts in the U.S. are represented by Community Financial Services Association (CFSA).

"CFSA strongly supports efforts to eliminate illegal and unethical lending practices," said Amy Cantu, spokesperson with the CFSA. "CFSA members are regulated, licensed lenders who uphold the industry's highest standards and have demonstrated a long history of compliance with all federal and state laws."

About 93% of payday loan borrowers carefully weighed the risks and benefits before taking out a loan and 95% value having the option to take a payday loan, according to a national survey by CFSA and Harris Poll. But with proper planning and budgeting, pay day loans would ideally not be an option at all.

"The goal of all families should be to conduct their financial life in such a way that they are not in need of short term loans and particularly pay day loans given the high interest and the very real possibility of becoming entrapped in the Payday loan cycle," Janas said. "A loan through a credit union is a safer route to go."

Without access to short term credit, borrowers can incur overdraft fees or bounced check fees, but about 68% prefer a payday loan over incurring a late fee of an estimated $30 or an overdraft fee of $35 from their bank.

"Once into a payday loan, the client often finds that they can not repay the loan in the two week cycle and repay the fee so they just repay the fee, hoping that they will have the money by the next due date and the cycle begins," said Janas.