Representatives of Maryland's check-cashing industry urged lawmakers yesterday to let them keep making short-term, high-interest loans that critics say violate a law that limits how much borrowers can be charged.
The industry wants the state's approval for transactions widely referred to as "payday loans." It hopes to achieve that objective through legislation to regulate their check-cashing businesses.
But an advocate for the poor told the Senate Finance Committee that payday loans -- often made at rates 20 times higher than the state's 33 percent interest limit -- should be sharply curtailed, if not outlawed.
Legislation is expected to be introduced early next year to regulate check-cashers. Sen. Thomas L. Bromwell, a Baltimore County Democrat, said he held an early hearing on the industry so committee members could begin to learn more about it.
Lawmakers are considering limiting the fees the companies can charge for cashing checks and providing other services. They also must deal with the issue of payday lending -- letting people borrow against their next paycheck.
Under a payday loan, someone who needs, for example, $300 gets it by writing a postdated check for $379. The company holds the check for two weeks or until the person's next payday. Calculated on an annual basis, the interest rate is more than 600 percent.
Brian I. Satisky, who heads an association of Maryland check-cashers, said the industry prefers the term "deferred deposit" for such transactions, and does not view them as loans subject to the state's interest rate limit.
He said the industry wants to be allowed to charge 20 percent for a payday loan of two weeks. That works out to an annual interest rate of 520 percent.
Some legislators were skeptical.
"In effect, you're making loans, and you're not a regulated industry. Technically, what it amounts to is that you're in the loan business," said Sen. Delores G. Kelley, a Baltimore County Democrat.
"We don't see it that way," Satisky responded. "We see it as a specialized form of check cashing."
Kelley also raised questions about loan "rollovers," in which some companies will extend a payday loan if the borrower comes in and pays another fee. She said that keeps some people in perpetual debt.
"Of course there are horror stories," Satisky said. "That's why we want to be regulated. We realize that's where the trouble is, with extensions."
Satisky said the 14 check-cashing outlets he runs with his brother do not do rollovers. He said deferred deposits are supposed to fill short-term, emergency needs and were never intended to be used on a continuing basis.
Deborah Povich, public policy director for the nonprofit Maryland Center for Community Development, said the steep fees for payday loans put people that much deeper in the hole.
She said her group thinks payday lending should either be prohibited or very strictly regulated. If it is allowed, she suggested a limit on interest rates only slightly above the state's current 33 percent cap and a ban on rollovers.