Maryland law puts a cap on the interest rates that can be charged to borrow money, but you wouldn't know that at People's Check Cashing in Baltimore and dozens of places like it.
Every day, customers pour into the check-cashing company at Howard and Fayette streets to borrow against their next paycheck at rates 20 times the state's 33 percent interest cap.
Need $300? A check casher will give it to you. Just write a postdated check for $379 and the company will hold it for two weeks, or until your next payday.
If you still can't pay, some will roll it over for two more weeks -- for another $79.
Calculated on an annual basis, that's an interest rate of more than 600 percent. But check cashers maintain they are not making loans.
They say they charge fees, not interest, on transactions they call deferred deposits or cash advances. Outside the industry, the practice is widely referred to as payday lending.
"We feel like what we're doing is legal," said Brian I. Satisky, who heads an association of Maryland check-cashing companies. "I don't know where the law is that you have to cash a check at a certain time."
State authorities have yet to challenge the check cashers' claims. But payday lending is expected to come under scrutiny as Maryland legislators consider licensing and regulating check-cashing companies.
Two Baltimore lawyers say they are preparing to file a class- action suit against several such companies, alleging that they are violating Maryland consumer protection and usury laws by making payday loans.
"These are Mafia-like interest rates," said lawyer William H. Murphy Jr. "We think it's absolutely illegal." He said he became aware of the practice when a client told him she was deeply in debt to check-cashing companies.
Payday lending has become popular at check-cashing operations that have replaced banks in poor and working-class neighborhoods not just in Baltimore, but across the state. Some stand alone, while others are tucked into the corner of liquor stores and pawn shops.
It is impossible to gauge how widespread the practice is because check-cashing businesses are not regulated in Maryland. Satisky said he did not have estimates of the dollar volume of business that check cashers do on cash-advance transactions.
He said his group, the Maryland Association of Financial Service Centers, has about 30 member companies, which operate 80 to 90 full-service check-cashing outlets in Maryland.
The group also has 25 to 30 associate members, such as liquor stores, whose primary business is not check cashing, he said.
Such outlets are a convenient place where people can, for a fee, cash their paychecks, buy money orders, pay utility bills and carry out other financial transactions, Satisky said.
"Deferred deposits" are not a major part of many check cashers' businesses, he said, and some do not engage in the practice.
Critics say payday lending is loan-sharking; check cashers say they are just providing short-term cash to people who have no other way to get it.
There is ambivalence among those who take out payday loans. For someone living on the edge, it might be the only way to get emergency cash to buy groceries, repair a car or pay the doctor.
"Right now, people who are being gouged feel there is no choice," said a West Baltimore man who ended up owing check cashers about $4,000 after taking out several payday loans and paying just the fees to roll them over.
At one point, it consumed nearly all of the $400 he made every two weeks, he said.
Like several other borrowers who were interviewed, he asked that his name not be used. He said he still owes money to a check casher and is trying to avoid drawing the company's attention.
"They will charge you a great deal, but they will give [money] to you," he said.
"What choice do you have? If you're victimized, it doesn't mean that you are ignorant and aren't aware you are being victimized. It just means you're desperate."
One woman said she periodically borrows $20 to $30 to buy food when she runs short of cash but pays it back before seeking another advance.
Another woman was indignant at the possibility the legislature would ban payday loans. "Why would they want to do that?" she asked. "This is my right."
Jonathan I. Lange, lead organizer of Baltimoreans United for Leadership Development, said check-cashing companies that make payday loans exploit low-wage workers who barely make it from paycheck to paycheck, often keeping them in perpetual debt.
"The payday loan is nothing but usury," he said. "We see banks closing up in the inner city and being replaced by these parasitical financial institutions. It's one more example of the poor paying more for services."
Does interest cap apply?
One issue that Maryland legislators will have to address in any bill regulating check cashers is whether to exempt payday loans from the state's 33 percent interest rate cap, as the industry wants.
Del. Elizabeth Bobo, a Howard County Democrat, said payday loans should be outlawed. She introduced a bill to regulate check cashers in this year's legislative session but withdrew it for further study.
Bobo said she is concerned that a two-tier financial system has developed in Maryland as banks closed branches in some neighborhoods and check cashers moved in, charging high rates for basic financial services.
"I think we've got to find another way in Maryland to provide these services," she said. "It's hindering these people from becoming economically self-sufficient."
A House of Delegates financial institutions subcommittee, on which Bobo serves, is to take up the issue next month. The Senate Finance Committee will hold a hearing Tuesday on regulating check-cashing companies.
Sen. Thomas L. Bromwell, the Baltimore County Democrat who is chairman of the Finance Committee, said he put the issue on the agenda because he was aware of the House bill last session.
He said the check-cashing industry, which has said it welcomes licensing and regulation, also had asked for a hearing before his committee.
"It's sort of a fact-finding scenario," Bromwell said. "We're not out to put legitimate businesses out of business, but we want to make sure consumers are treated fairly. I want to find out what other states are doing."
Several states -- including Virginia -- have won court cases against check cashers, arguing that deferred deposit transactions were in fact loans and that the fees charged for them exceeded interest rate caps in those states.
Other states have carved out exceptions in their laws so check cashers can charge higher rates, which the industry says are necessary to profitably make "cash advances" to people who often have poor credit histories.
The Consumer Federation of America, which has been tracking the growth of payday lending nationwide and is sharply critical of the practice, said 22 states and the District of Columbia have laws or regulations specifically allowing payday loans.
Jean Ann Fox, the federation's director of consumer protection, said Maryland officials need to be cautious about giving check cashers any exemption from the state's interest rate limit.
"What you need in Maryland is some enforcement of the law," Fox said. "You shouldn't just write the payday loan industry a pass. What they want is an exemption from usury laws."
Satisky said critics such as Fox are unrealistic.
"She thinks everybody should just save money and have a checking account," he said. "Tell the guy who needs $150 to fix his car right away so he can get to work that the answer is to save money."
Satisky said his group favors regulating check cashers and the fees they can charge. But he argued that eliminating payday loans is not the answer and that check cashers need to be allowed to charge enough to make a profit.
"It's a high-risk business," Satisky said.
He estimated that 20 percent to 25 percent of post-dated checks go bad. Customers sometimes stop payment on checks, or they bounce when deposited, he said.
Satisky said check cashers should be allowed to charge a fee of up to 20 percent on a post-dated check held for two weeks.
That works out to an annual interest rate of 520 percent, but he said it isn't fair to look at such transactions in annual terms.
"We don't feel a need to discuss long-term costs because this is not a long-term loan," Satisky said.