(Reuters) -- Payday lenders gathered an array of supporters at a hearing hosted by the U.S. Consumer Financial Protection Bureau, trying to sell the new agency on the benefits of the controversial short-term, high-interest loans.

The CFPB, which recently gained the power to oversee the industry, held the event on Thursday in Alabama - the state with the highest number of payday lenders per person.

A call went out from Advance America, the country's largest payday lender, on a website for neatly dressed, articulate and positive customers.

Supporters packed the room to tell tales of how short-term lending products have helped them get by.

LaDonna Banks described an emergency kidney transplant for her brother, where a payday loan saved her $200 in banking fees.

Sydney Bonner, who had her job hours scaled back, got a payday loan for a birthday party for her six-year-old.

Angie Thomas found a payday loan cheaper than a credit card advance in a family emergency.

Consumer groups for decades have called payday loans "debt traps" that hook the poorest in an endless cycle of mounting interest payments.

Until recently, payday lenders faced a patchwork of state regulations to try to protect consumers from deceptive or predatory practices in the industry.

With President Barack Obama's appointment of Richard Cordray earlier this month to head the CFPB, the agency gained new powers to write rules that govern the short-term loans.

Cordray told the hearing that the agency will take a measured approach to the industry.

"We came here to listen, to learn, and to gather information on the ground that will help inform our approach to these issues. We are thinking hard about these issues, and we do not have all the answers worked out by any means," he said.

"LIKE A HURRICANE"

Opponents painted the payday and title loan industry as exploiters who took advantage of the poor.

Shay Farley of the non-profit Alabama Appleseed calculated the $17.50 average charge on $100 for two weeks as a 460 percent annual interest rate.

"It is usury, and in the Bible Belt, that should be offensive to us," said Farley.

Another opponent, Stephen Stetson from Alabama Arise, another non-profit, compared payday lenders to Hurricane Katrina, which devastated New Orleans in 2005.

"When a storm hits, and people are desperate and in need, you can't charge $8 for a gallon of gasoline. We have anti-gouging laws and every day is like a hurricane when you are living on the edge," said Stetson, an advocate for the poor.

Jamie Fulmer, vice president of public affairs for Advance America, defended the industry, saying it is a good alternative for desperate borrowers.

"Compare our fees to a $36 (check) bounce fee, not counting what the vendor will charge," said Fulmer.

(Reporting by Verna Gates; Editing by Tim Dobbyn)

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