February 22, 2001|By Thomas W. Waldron and Greg Garland | Thomas W. Waldron and Greg Garland,SUN STAFF
A year after the General Assembly acted to ban "payday lending," which provides short-term loans at high interest rates, prominent legislators are pushing to make the loans legal again.
To the dismay of community activists who have battled against what they call legalized loan-sharking that is widespread in poor black communities, two leading African-American lawmakers - Sen. Clarence W. Blount, the Senate majority leader, and Del. Talmadge Branch, head of the Legislative Black Caucus - are sponsoring legislation to allow payday loans.
Their support comes even as at least one out-of-state bank has begun taking advantage of a loophole in federal law to offer payday loans through check-cashing outlets in Maryland.
In recent interviews, Branch and Blount said payday lending fills an important need in poorer areas deserted by banks.
And they said their bill has safeguards to protect customers - particularly a prohibition on the practice of "rollovers," in which some payday loan customers end up with enormous interest debts.
"The bill as drafted will be very helpful to a population that just can't get small loans from banks," said Branch, an East Baltimore Democrat.
Blount said some lenders are making payday loans now, despite restrictions in state law. "Right now, it's a loose cannon," said the West Baltimore Democrat. "There's a need for structure on it."
A payday loan gives a customer an amount in cash, typically between $100 and $200. In exchange, the customer gives the lender a personal, postdated check for the loan amount plus a fee. Postdating the check gives the customer time to come up with the payback amount.
Check-cashing outlets typically charge a $15 fee on a $100 loan.
Critics contend that such fees amount to annual interest rates of more than 300 percent. They have been trying to talk Branch and Blount out of their support for the legislation.
"Charging usurious rates is no answer to the need to provide loans to low-income people," said Deborah A. Povich, a lobbyist for a low-income housing advocacy group. "There have got to be better answers. It's up to the people who make public policy to make sure there are better alternatives to payday loans."
Various community groups, including the BUILD organization, have suggested that credit unions or church-based financial institutions could fill the need.
Last night, leaders of BUILD - or Baltimoreans United in Leadership Development - denounced payday lending during a community meeting of about 500 people in East Baltimore, and they called on Branch, who attended, to pull his name from the legislation.
"I believe he has heard the voice of lobbyists, but has not heard the voice of the people and pastors from this area who are anti-payday lending," said Pastor Calvin E. Keene of Memorial Baptist Church. "In my opinion, this is a poor tax, and more disturbing, a black tax."
Undeterred, Branch told the group he still supports the legislation. "I have placed my name on that bill in the firm belief it will be helpful to my community," he said to a chorus of groans and jeers.
The payday-lending industry hired several highly paid lobbyists last year but failed to preserve the practice here. This year, the industry and its lobbyists have returned for a second try.
American Joe Miedusiewski, a lobbyist for the Community Financial Services Association of America, a coalition of 7,000 payday lending outlets interested in doing business in Maryland, said the proposed legislation is fair to both lenders and customers.
The bill would limit the loan interest to 15 percent over the typical two-week payback period. In a key provision, lenders would be forbidden from the interest "rollovers" that can cause customers to rack up unmanageable debt.
For example, a customer who has borrowed $200 would owe $230 at the end of the two weeks. With a rollover, that debt would rise to $260 and then $290 if the loan were extended for four more weeks.
"The people who say [payday lending] is bad, they're talking about examples that are born out of a lack of regulation," said Miedusiewski, a former state senator, referring to horror stories about rollover debt. "We're in the business of making loans to people who will pay it back."
Miedusiewski said opponents' are misrepresenting the rates charged by his clients - and suggested other financial institutions charge comparable fees for other services. A bank, he pointed out, will charge $25 or more when a customer bounces a check for $100, while a payday lender may charge $15 for a $100 loan.
Under current law, payday lending violates the state's 33-percent cap on consumer loans, according to the state attorney general's office. But that law does not apply to out-of-state financial institutions. At least one California-based bank has been making payday loans through Maryland-based outlets, according to advocates on both sides of the issue.
Del. Maggie L. McIntosh, a Baltimore Democrat, has introduced legislation designed to stop Maryland companies from helping out-of-state banks make payday loans. But supporters of payday lending say it's not clear if the legislature can interfere in federally regulated banking activities.
Sun staff writer Howard Libit contributed to this article.
