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RICHMOND -- Last year Sen. Phillip Puckett, D-Russell County, fought to keep the state's payday lending industry alive as he carried legislation that represented a hard-fought compromise between the industry and its critics.

Now, less than a month since new regulations took effect, Puckett said payday lenders have not kept their end of that bargain.

At issue is a new product that offers borrowers an open-ended line of credit with no restrictions on interest rates or what fees may be charged. Lenders said it's another option for those strapped for cash in these tough economic times. Critics said it's a blatant attempt to bypass the new rules.

"They are circumventing what we tried to do," Puckett said. "That sends the wrong message, not a very good-faith effort on their part -- and I'm one of the guys that fought for them."

Jamie Fulmer, a spokesman for Advance America, the nation's largest payday lender, defended the credit lines as another alternative that has been approved for consumers by a regulatory division of the Virginia State Corporation Commission.

"It was never the industry's intent to circumvent last year's payday loan reforms by offering these lines of credit to consumers," Fulmer wrote in a statement from the Community Financial Services Association.

Over the past several years, payday lenders have offered loans of $500 or less, with borrowers presenting a post-dated check in return for cash upfront. Critics argue that the industry practices "predatory lending" that puts borrowers into a cycle of debt with hidden fees and exorbitant interest rates connected to those loans.

Those critics spent much of the past two years trying to either cap the loans' annual interest rates at 36 percent -- which payday lenders said would put them out of business -- or strike the 2002 law that allows them to operate.

Legislators eventually reached a compromise that created a complex fee structure for borrowers, extended repayment periods and limited the number of sequential loans a borrower can obtain.

Even before the new restrictions took effect on Jan. 1, however, lenders began to offer a different product not subject to that law. Advance America received authorization in November from the SCC's Bureau of Financial Institutions to offer open-ended lines of credit of between $500 and $750.

"It functions very much like a credit card without the card," Fulmer said.

The credit lines are authorized under the same section of state code that also allows for car title loans, in which lenders can borrow up to 50 percent of their vehicle's value in exchange for a copy of its keys and a lien on its title.

Sen. Mark Herring, D-Leesburg, said lenders have used the code section -- which provides for a 25-day grace period but no cap on interest rates beyond that time -- to charge usurious interest rates of more than 300 percent annually, along with a variety of fees.

Herring filed a bill Thursday that would apply an annual interest rate cap of 36 percent to open-ended loans, which he said "will stop both car title lenders and payday lenders from exploiting this loophole and exploiting Virginia's families."

Two other legislators -- including Senate Majority Leader Richard Saslaw, D-Fairfax County, who last year was one of the industry's biggest defenders -- have filed legislation that would prohibit payday lenders from offering both payday and open-ended loans, but some have suggested that those bills would do nothing more than drive the industry entirely to open-ended loans.

"The open-ended loan might be worse than the payday loan," Puckett said. "They're certainly no better."

It's unclear whether lawmakers are willing to fight another protracted battle over payday lenders just one year after the compromise bill appeared to have ended the debate.

Del. Terry Kilgore, R-Scott County, who chairs the House Commerce and Labor Committee -- where any payday lending legislation would be considered -- said he would have to evaluate the new legislation before taking a stance.

Del. Onzlee Ware, D-Roanoke, said he had hoped the "final battle" over payday lending was over.

"I think we're at the point where we're either going to allow the people to be in Virginia with responsible regulations and no loopholes, or we're going to prohibit it altogether," Ware said. "But even when you prohibit it altogether, you're still going to have people who need emergency loans. And I don't know the answer for that."