Turning back an aggressive push from out-of-state finance companies, a Senate committee killed last night a bill that would have legalized high-interest "payday lending" in Maryland.
On a unanimous voice vote, the Senate Finance Committee voted to reject the bill, but also to study the issue of short-term loans after the General Assembly adjourns in April.
Many committee members objected to a practice that some community activists have likened to legalized loan-sharking because of the high annual interest rates.
"They can study it if they want, it's still a bad bill," said Sen. Delores G. Kelley, a Baltimore County Democrat.
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.
But representatives of the payday loan industry stressed in testimony in recent days that they provide an important service to customers looking for short-term assistance. They likened their fees to the charge a bank imposes on a customer who bounces a check.
American Joe Miedusiewski, a former state senator who lobbies for the Community Financial Services Association of America, a coalition of 7,000 payday lending outlets interested in doing business in Maryland, said last night that he was pleased the committee had opted to study the issue.
"I absolutely think it's a step forward," Miedusiewski said. "They recognize there's a need for these type of loans. There's a market for it."
The committee chairman, Sen. Thomas L. Bromwell, said lawmakers would study the payday lending issue, as well as related bills dealing with fees charged by check-cashing outlets.
"We'll see what we can come up with," said Bromwell, a Baltimore County Democrat.
The General Assembly acted last year to prohibit payday loans.
Some legislators were unhappy to learn in recent weeks that payday lending is nonetheless taking place in Maryland, as at least one out-of-state bank has begun offering the loans.
The loans are legal under federal law, state officials said, so the Maryland statute does not prevent out-of-state lenders from offering them here.
Even so, the coalition represented by Miedusiewski has said its members won't offer the loans in Maryland unless the state law is changed.
With the payday lending bill killed, some legislators want to find a way to prevent out-of-state banks from offering the loans.
A pending bill pending would prohibit Maryland outlets from working with out-of-state banks to make the loans.
Several community groups, including Baltimoreans United in Leadership Development, have made a strong push to keep payday lending illegal.
Community opposition was so strong that Del. Talmadge Branch, an East Baltimore Democrat, opted to end his sponsorship of the legislation last week.