Lawmakers urged to reject request to lift restrictions on payday loans

Lenders want to be exempt from interest-rate caps

February 02, 2000|By Greg Garland | Greg Garland,SUN STAFF

An array of public-interest groups urged Maryland lawmakers yesterday to reject proposals to lift the state's interest-rate limits for businesses involved in a practice known as "payday lending."

Payday lenders -- usually check-cashing companies -- make short-term, high-interest loans by accepting post-dated checks from people who are in effect allowed to borrow against their next paycheck.

The fees on the transactions often work out to an annual interest rate of 400 percent or more. Payday lenders say they provide a needed service for people who often have no other source of short-term cash; critics say their practices exploit the poor.

At a press conference yesterday, payday lending came under fire from the Maryland Public Interest Research Group (MaryPIRG), Maryland Center for Community Development, American Association of Retired Persons, Maryland Interfaith Legislative Committee and other public-interest groups.

Representatives of the groups said that payday lenders are stepping up lobbying efforts to weaken state laws against usury, and urged lawmakers to "reject efforts by the payday loan industry to legalize its lending practices."

MaryPIRG Executive Director Lea Johnston released a survey of payday lenders in Maryland that found annual interest rates of as much as 858 percent on loans to consumers -- despite a state law that limits interest charges on small loans to 33 percent.

The average annual rate charged by Maryland payday lenders was 596 percent, the survey found.

"Consumers who turn to payday loan operations with names like `Cash and Dash' and `EZ Check Cashing' for quick cash wind up paying interest that would make a loan shark blush," Johnston said.

Denise Davis, executive director of the Women's Law Center of Maryland, said the reason for usury laws, historically, has been to prevent lenders from taking advantage of a vulnerable population. "These are people who are basically struggling to pay their bills," she said.

Although no legislation has been introduced yet, the payday lending industry has enlisted a platoon of lobbyists to try to persuade the General Assembly to carve out an exemption for it from the state's 33 percent interest rate cap.

"There is no doubt this is a major issue in Annapolis during this legislative session," said Del. Elizabeth Bobo, a Howard County Democrat.

Bobo, who attended the press conference, said payday lending and check-cashing businesses are examples of a "two-tiered financial system" that has developed in which the poor pay more for basic services.

Deborah Povich, public policy director at the Maryland Center for Community Development, faulted state financial regulators for "sitting on their hands" and not enforcing state law that limits the interest rates on small loans. "We think the laws on the books are clear," Povich said.

Check-cashing companies have argued they are not making loans when they accept post-dated checks from consumers. They say they charge fees, not interest, on transactions that are intended to be only short-term cash advances.

"We don't believe that we have ever given loans," said Michael F. Canning, a lobbyist for an association of Maryland check-cashing outlets. "We cash checks for a fee. It is a short-term relationship and annual percentage rates are really not relevant."

However, the state attorney general's office, in an opinion issued in November, said that it regards the transactions as consumer loans subject to the state's interest rate limits and to laws regulating lenders in Maryland.

Povich said a bill in the works would give Maryland's commissioner of financial regulation civil enforcement authority and more staff to enforce the state's laws prohibiting usury.

The measure also would give the commissioner the power to issue cease-and-desist orders and levy fines, Povich said. Violations are misdemeanor criminal offenses that are rarely prosecuted, she said.

In Annapolis

Today's highlights:

House of Delegates meets, 10 a.m., House chamber.

Senate meets, 10 a.m., Senate chamber.

House Ways and Means Committee briefing on Baltimore and Prince George's schools, 11 a.m., House office building, Room 110.

Senate Judicial Proceedings Committee hearing on SB 8, to require helmets for in-line roller-skaters, 1 p.m., Senate office building, Room 300.

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