Trying to prod state regulators to crack down on payday lenders, a public interest group filed a complaint yesterday against 10 Baltimore businesses that it claims are violating Maryland's consumer loan laws.
The group, Baltimoreans United in Leadership Development (BUILD), lodged the complaint with Maryland Commissioner of Financial Regulation Mary Louise Preis, whose agency oversees consumer loan businesses.
Payday lenders make short-term, high-interest loans by accepting postdated checks from people who, in effect, borrow against their next paycheck. The fees charged amount to an annual interest rate of 400 percent or more.
Scott Cooper, a BUILD organizer, said the practice violates a Maryland law that limits the interest that can be charged on small loans to no more than 33 percent. In addition, he said, the businesses are not licensed to make loans to consumers.
Cooper said regulators have been reluctant to take action against payday lenders in the absence of a formal complaint. BUILD hopes to force the issue with the complaint it filed yesterday on behalf of four of its members who were offered or given loans, he said.
"We don't think they [regulators] should be selective about which laws they enforce," Cooper said.
Preis was unavailable yesterday, but a spokeswoman for her office, Karen Napolitano, said the complaints would be investigated and "referred for criminal prosecution, if that's what is warranted."
Making consumer loans without a license in Maryland is a misdemeanor, punishable by a fine of up to $5,000 and three years in prison. Loaning money at rates higher than the state's 33 percent cap also is a misdemeanor, punishable by a $500 fine and six months in prison.
Brian I. Satisky, who heads an association of Maryland check-cashing companies, said the businesses do not believe they are violating state law because they do not regard their postdated check transactions as loans.
Satisky and other payday lenders say they charge fees, not interest, on transactions meant to be short-term cash advances. They say that the advances are not intended to be traditional loans and that it is unfair to quantify the fees charged in terms of annual percentage rates.
"We feel as though we have always complied with the law as we see it," Satisky said.
The issue of whether the transactions are loans has not been brought before a judge.
An assistant state attorney general's opinion, issued in November, held that such transactions are consumer loans subject to the state's interest rate limits and to laws regulating consumer lending in Maryland.
BUILD's action comes as the General Assembly prepares to consider legislation that would exempt payday lenders from the 33 percent rate cap. Bills filed this week would allow the businesses to charge annual percentage interest rates of up to 468 percent.
Other bills filed would regulate check-cashing businesses and would give Preis' office civil enforcement powers so her office could levy fines or impose other sanctions on businesses that violate consumer lending laws.
Businesses named in BUILD's complaint were Hollinswood, AA Check Cashing, State Check Cashing and Income Tax, A&B Check Cashing, Dunes Check Cashing, People's Check Cashing, Chextop, Essex Check Cashing, Pimlico Check Cashing and Famous Pawnbrokers.