Cracking down on payday loans

Fear not, boardwalk vacationers. Labor Day may be approaching, but one of summer's favorite pastimes, the Whac-A-Mole game, is getting an extended run. We speak, of course, of Maryland's unceasing efforts to protect consumers from unscrupulous payday lenders.

Just like those varmints that pop up unpredictably — and must be hammered with authority — these modern-day Shylocks charging their 400 percent interest rates are not easily thwarted. Since 2005, every state in the union has adopted laws banning such loans, yet an estimated 12 million Americans are trapped in the payday lending cycle.


Maryland, which has had a limit on consumer loan interest rates for several decades, had to amend state law several years ago when payday loan companies found a way around the interest cap by charging a separate broker fee. Sure, they billed only 33 percent interest (the maximum allowed under state law), but add in the fee and it could be as much as 600 percent.



But the latest loophole presented to Maryland's financial regulators is even more devious. Now, people are getting their payday loans through the Internet and then paying them back, often unwittingly, through charges on their bank accounts.

The net effect? Once again, consumers are paying usurious interest rates of several hundred percent annually. And this time, it's much tougher to crack down because the lenders aren't located inside the state. In some cases, they're not even located inside the country.

As reported by The Sun's Eileen Ambrose, that's spurred Maryland's chief financial regulator to adopt a new tactic. He's going after the out-of-state banks that are facilitating these payday loans by allowing the lenders — usually through a third party — to debit the loan recipient's checking account.

Banks may not like it (although many in the industry are probably as outraged by payday lending practices as anyone), but that's fair game. Legitimate financial institutions have an obligation not to facilitate law-breaking. That's not just state law; the Federal Deposit Insurance Corporation and other federal banking regulators enforce similar rules.

Still, it's a tough row to hoe. Mark Kaufman, commissioner of the state's division of financial regulation, suspects that the more banks are pressured by him and others, the less likely they are to do business with these transaction-processing companies that are working for the payday lenders. But it's hardly a sure thing.

Technology has changed the financial services industry, and he and others suspect that new laws may be needed. And there's already one pending in Congress and co-sponsored by two Baltimore-area congressmen, Rep. Elijah Cummings and Rep. John Sarbanes. Their aptly named Stopping Abuse and Fraud in Electronic (SAFE) Lending Act of 2013 would require "remotely created checks" to be authorized only if the consumer has given written approval.

The legislation also makes clear that Internet lenders must follow the lending laws of the state where the consumer resides in regard to interest rates, fees and charges. And it gives the federal Consumer Financial Protection Bureau, the independent agency that was the brainchild of U.S. Sen. Elizabeth Warren and created by the Dodd-Frank financial reform law, the authority to investigate violations.

That sounds great, and we hope the House is up for this important reform. Generally speaking, the chamber has shown little interest in siding with consumers over most anyone in the banking industry under Republican leadership. Yet the stories of payday loans are often so horrific, we have to wonder if the hearts of those serving on the House Committee on Financial Services, where the bill has sat since March, may yet be softened.


Admittedly, high-interest-rate consumer loans have always been with us and perhaps always will be. People can become so desperate for cash, particularly in hard times, that getting some now may look attractive no matter what the fine print says — if they even bother to read it.

But make no mistake, these companies are doing poor families no favor when triple-digit interest charges mount and add to their woes — to the tune of $3.5 billion annually, according to the Center For Responsible Lending. Likening such weaselly lenders to moles may be treating them far more kindly than they deserve.