House OKs bill targeting payday loans

Opponents say practice unfair to less affluent

March 24, 2001|By M. Dion Thompson | M. Dion Thompson,SUN STAFF

The House of Delegates has unanimously approved legislation to prohibit Maryland check-cashing outlets from working with out-of-state banks to make high-interest payday loans.

The measure, which would also set up a 15-member commission to study the need for short-term loans, now moves to the Senate Finance Committee. Sen. Thomas L. Bromwell, committee chairman, has said he supports the idea for a task force.

"We could do more than that," he said. "We'll see what [the House] has done and get it worked out."

Del. Maggie L. McIntosh, the bill's chief sponsor, said she hopes the task force will be able to come up with innovative alternatives to payday lending.

"I think we ought to think outside the box with banks and credit unions to see if there is a way to establish financial services in these neighborhoods," said McIntosh, a Baltimore Democrat.

The emergency loans are a well-known part of life in poorer neighborhoods.

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 of usually $15 on a $100 loan. Postdating the check gives the customer time to come up with the cash to pay back the loan. Under current law, payday lending violates the state's 33-percent cap on consumer loans, according to the state attorney general's office. That law does not apply to out-of-state financial institutions.

A California-based bank has been making payday loans through Maryland-based outlets, according to advocates on both sides of the issue.

The company has been able to take advantage of a loophole in federal law.

House Bill 973, which passed Thursday by a vote of 138-0, closes that loophole.

The bill's supporters said the out-of-state bank is making loans at an annual rate of 390 percent.

Several community groups, including Baltimoreans United in Leadership Development, have pushed to end payday lending and to find reasonable alternatives.

"They don't need payday lenders in their neighborhoods," said Deborah Povich, public policy director for the Maryland Center for Community Development. "We need banks in these communities."

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