Payday Predators

An annual percentage rate of 520 percent is apparently not good enough for the payday loan operators. They want to be able to charge up to 910 percent on an annual basis for Mainers who live paycheck to paycheck and need cash in the meantime. The industry has a bill, LD 788, pending in the Maine Legislature that would raise the permissible rate to that level. It also would exempt the payday loan business from Maine’s Consumer Credit Code, which protects Mainers against abusive fees and collection practices.

Fortunately, the Joint Standing Committee on Business, Research and Economic Development saw through the bland wording of the bill for a “Deferred Deposit Loan Act” and unanimously gutted the text. It proposed substituting a resolve calling for a study by the Office of Consumer Credit Regulation in collaboration with the Office of the Attorney General and other interested parties on lending in the sub-prime market. If the Senate and House approve the committee’s action a report would be due Feb. 1.

Maine’s present limit on payday loan interest is $25 on a loan of $250 for one week. That’s 10 percent a week, or 520 percent on an annual basis. Since the overhead cost of making a small loan is almost as great as a large loan, the $25 fee may sound reasonable. In fact, it is so low that only six payday loan firms operate in Maine – two in Portland and one each in Bangor, Biddeford, Brunswick and Lewiston.

Most other states also permit payday loans. Six of them have such loose regulation that each has more than 1,000 payday loan offices, many of them just outside military bases.

Will Land, director of the Office of Consumer Credit Regulation, predicts that if the Legislature should reject the committee report and enact LD 788 Maine would have 100 or more payday loan offices within 18 months.

The study that the committee has proposed could look into any complaints about the present payday loan system, as well as alternate sources of ready cash such as the network of credit unions and a “rent-to-own” system like installment buying without the possibility of repossession.

It could look into how often borrowers at the present 520 percent rate keep renewing their loans week after week as an addiction that a local banker likens to a crack cocaine habit.

It also could consider whether the industry’s proposal of up to 17.5 percent interest for a week’s loan of $250 – which comes to $43.75, or an annual percentage rate of 910 percent – is just a fair return for the lender or outright usury from the point of view of the borrower.