Payday lending takes hit in three states

MADISON, Wis. (12/7/05)--As legislators make moves to halt predatory payday lending practices, credit unions continue to work toward payday alternative products and services.

In Maryland, the Montgomery County Council voted to increase fines for predatory lending to $500,000 from $5,000 for each violation, said the Maryland & District of Columbia Credit Union Association (MDDCCUA). The measure also expands the number of practices that are deemed predatory and prohibits individuals and institutions from engaging in discriminatory lending (Focus Newsletter Dec. 6).

More than 10 credit unions in Maryland are participating in the REAL Solutions program from the Filene Research Institute, according to Mike Beall, president/CEO, MDDCCUA. Many participating credit unions are focusing on payday-style products, with one credit union granting 4,000 loans as an alternative (News Now July 27).

Pennsylvania Secretary of Banking Bill Schenck testified Tuesday before the state Senate Banking and Insurance Committee on how the state regulator could help protect consumers by regulating payday lenders, said the Pennsylvania Credit Union Association (Life is a Highway Dec. 6).

A bill sponsored by State Sen. Vince Fumo (D-Philadelphia) would close a loophole that payday lenders use to get around the current state prohibition against short-term loans with high interest rates.

Lenders partner with out-of-state banks, which only receive a portion of the loan revenue, and use federal banking regulations to bypass state law. Fumo's bill would require that any lender receiving the majority of the proceeds of the loans be barred from engaging in payday lending.

The bill received a supporting letter from the Department of Defense that stated its concern about the growing payday lending industry in a state that has the fourth largest Guard and Reserve population in the U.S.

A study earlier this year by two professors showed a higher concentration of payday lenders in counties with a military presence vs. nonmilitary presence, a higher concentration of payday lenders in ZIP codes near or adjacent to military bases, and the total number of payday lenders in these areas exceeded the statewide average prediction (News Now March 23).

This week, the Washington State Department of Financial Institutions charged an unlicensed payday lender for violations of the state lending law. The Lacey, Wash.-based company will be fined $72,800, pay restitution to all affected borrowers on interest and fees, ban owners Carl and Elaine Ehresman from payday lending for five years and require payment for investigative fees and services.

One borrower paid more than $19,500 in interest on loans obtained from August 1997 through Feb. 15, 2005.

The regulator found Expressit Inc. provided payday loans to hundreds of borrowers without a license, failed to provide written agreements or disclosures to borrowers, granted loans and charged fees in excess of the statutes, and refinanced payday loans with proceeds from other loans.

Washington credit unions have teamed up with Olympia-based Washington State Employees CU (WSECU) for its Q-cash program, a payday loan alternative. Loans range from $50 to $700, and funds are deposited directly into the member's account. The first-time loan maximum is for $250 (NewsNow Jan. 26).

Resource Links

Statement stuffer: Payday Loans: The Hard Truth About Some 'Easy' Money

CUNA Lending Council white paper: Lending to Low-Income Members & Underserved Communities