National payday lending chains are eager to move into Maryland as the General Assembly considers exempting such businesses from a law that limits the interest rates allowed on consumer loans.
If legislators approve the change, it will open the door for the chains to set up shop in Maryland and start making high-interest, short-term loans to consumers who are borrowing against their next paycheck.
"They wouldn't be working this hard to get legislation if they didn't feel there was a good market in Maryland and didn't want to get into it," said Maxine Adler, an Annapolis lobbyist hired by a national association of payday lenders.
Maryland has a home-grown version of payday lending -- through locally owned check-cashing outlets that operate as small, stand-alone stores or in retail outlets such as liquor stores and pawnshops. A public interest group has filed a complaint against these businesses saying they violate state consumer loan laws.
The big payday lending chains have steered clear of Maryland because state law limits the interest that can be charged on consumer loans to an annual rate of no more than 33 percent. Lending money at rates higher than the state's limit is a misdemeanor, punishable by a $500 fine and six months in prison.
The General Assembly is considering an exemption for payday lending that would let those businesses charge fees that amount to an annual interest rate of as much as 468 percent on loans.
The change is a key part of what proponents bill as reform legislation to, for the first time, license and regulate check cashers and payday lenders in Maryland. Such businesses now operate without regulatory oversight.
The prospect of payday lenders flooding into Maryland worries public interest groups, which say those businesses prey on the working poor and often place them on a treadmill of never-ending debt.
"I think they see Maryland as a cash cow," said Deborah Povich, public policy director for the Maryland Center for Community Development. "They are waiting to walk in and make money on people least able to afford the fees they charge."
Payday lenders say there is a consumer demand for payday loans, that outlets have sprung up to offer the service in Maryland and that it makes sense for the state to license and control the practice.
Executives with several national chains that specialize in payday lending -- some of which are highly profitable, publicly traded companies -- said they see Maryland as a potentially lucrative market for their business.
"Based on the robust demand that we've seen for this product in other states, there's no reason to think that would not be the case in Maryland," said Eric C. Norrington, vice president of ACE Cash Express, based near Dallas.
Jerry L. Robinson, a Little Rock, Ark.-based investment analyst who tracks the industry, agreed that Maryland would be fertile territory for national chains.
"The demographics are fairly good in Maryland, with densely populated areas, a fairly large disposable income and high employment," he said. "The median income is in the high-$30,000 range. You're talking about the heart of the middle class here."
Malin T. Jennings, spokeswoman for the Community Financial Services Association of America, an industry trade group, said that if legislation is approved in Maryland to allow payday lending, the chains are likely to set up shop in suburban shopping centers.
"Most people assume they'll be in the inner city with bars on windows that are 2 inches thick, but they tend to be in suburban malls and look very much like bank lobbies, with carpeting and the interior decorated," she said.
Since payday lending started taking off in 1994, 19 states and the District of Columbia have passed "safe harbor" legislation allowing the practice. Payday lenders also operate in nine other states that set no limit on the fees or interest charged on loans.
In an investment analysis of the national industry, Robinson predicted that the number of stand-alone stores that do only payday lending will more than quadruple by 2002 -- from about 6,000 to 25,000 -- and that industry revenues could increase from $2 billion to $6.75 billion.
"Every state is a desirable market," said William M. Webster IV, president of Advance America, based in Spartanburg, S.C., the nation's biggest payday lending chain with 1,300 outlets nationwide.
Webster heads the Community Financial Services Association of America, an industry trade group that he said hopes to "get good, appropriate legislation passed in all 50 states" allowing payday lending.
Scott Cooper, an organizer with Baltimoreans United in Leadership Development, a group that has been pressing regulators to crack down on the state's home-grown payday lenders, is worried by what he sees as the industry's predatory practices.