A bill being pushed by the check-cashing industry to legalize "payday lending" in Maryland has been killed by a Senate committee.
The industry had wanted the legislation to gain state sanction for a practice that has become widespread in the past several years. A spokesman predicted that many outlets will stop offering such loans within days.
"We will be stopping our program as of this weekend," said Brian I. Satisky, who represents an association of check-cashing outlets in Maryland and runs 13 of them. "I still contend that it is a very valuable and needed service."
Payday lenders make short-term high-interest loans by accepting postdated checks from people who essentially borrow against their next paycheck. The fees charged amount to an annual interest rate of 400 percent or more.
Maryland law limits the rate that can be charged on consumer loans to 33 percent. The bill the industry wanted would have carved out an exception so payday lenders could charge as much as 468 percent interest on their loans.
The Senate Finance Committee voted 9-2 Wednesday to reject the bill, which was sponsored by Sens. John C. Astle and James E. DeGrange Sr., both Anne Arundel County Democrats.
"It's not something that's in the best interests of the public," said Sen. George W. Della Jr., a Baltimore Democrat who opposed the bill. "It takes advantage of people and we don't need that."
The panel acted a day after hearing an array of public interest groups testify that payday lenders exploit the working poor, trap people on a treadmill of debt and serve as a destructive force in struggling communities.
At the hearing, Attorney General J. Joseph Curran Jr. disclosed that his office is investigating complaints about payday lenders, while Maryland's top financial regulator said she is sending letters warning them that their practices violate state law.
The legislation was heavily lobbied by Maryland check-cashing outlets that have been doing payday lending, as well as by national chains eager to move into the state.
The local check-cashing businesses had maintained they were not making loans by accepting postdated checks from customers and said they charged fees, not interest, for the transactions. But Curran's office issued an opinion in November rejecting that argument.
American Joe Miedusiewski, an Annapolis lobbyist hired by an association of national payday lending chains, said he was disappointed by the committee's decision. He predicted some Maryland outlets would look into affiliating with out-of-state banks so they could continue the practice.
Under federal banking law, payday lenders can become partners with banks in other states that allow much higher interest rates to be charged on loans. The law would allow those rates to be charged in Maryland.
"Sometime this year, you're going to see several entities doing those transactions," Miedusiewski said.
He said the industry might try again to change Maryland's law.
"We're going to sit down over the summer with interested parties from the House, the Senate and the BUILD people and see if we can come to a meeting of the minds on the issue," Miedusiewski said.
Baltimoreans United in Leadership Development was one of several groups credited with helping to kill the legislation.
Marvin H. Lee, a BUILD leader, said yesterday that legalizing payday lending would have "opened a Pandora's box" of problems for poor neighborhoods. "We want to keep our communities. We want to rebuild our communities," he said.