Targeting Businesses Targeting The Poor
D.C. Legal Chief Calls for Curbs on Fees, Interest Rates

By Keith L. Alexander
Washington Post Staff Writer
Thursday, April 26, 2007

The District's attorney general yesterday proposed legislation to limit high fees charged by financial businesses that cater to low-income customers.

Attorney General Linda Singer said she plans to hold town hall meetings and work with D.C. Council members to introduce laws lowering interest rates that can reach almost 400 percent a year.

The targets of Singer's ire were included in a 25-page report her office is expected to release today, "The High Cost of Being Poor in the District of Columbia." They include check-cashing centers, rent-to-own facilities, payday loans, subprime mortgages, auto financing, tax refund-anticipation loans and international money wires.

In addition to imposing fee limits, Singer said she wants more transparency in loans so that customers can make comparisons and projections.

"We want to make sure consumers are treated fairly and they have the ability to make good choices in how they spend their money," she said.

Many laws have been ineffective because of loopholes, said Singer, who met yesterday with council member Mary M. Cheh (D-Ward 3).

Cheh, head of the Public Services and Consumer Affairs Committee, said she will work with Singer to determine what type of legislation should be introduced. Cheh recently introduced a bill that would require mortgage lenders to disclose the total payments over a loan's lifetime, including principal, interest, taxes and insurance.

"We can pass the laws, but we can't enforce them," Cheh said. "By linking together and proceeding against them, we can be much more effective."

According to the attorney general's report, minorities and low-income residents who are less likely to have bank accounts are among the biggest customers of financial service firms that charge significantly higher fees than banks.

Check-cashing businesses charge fees up to 5 percent. Payday loan centers charge up to 10 percent of the loan, plus an additional $5 to $20. In effect, a loan of just two weeks carries an annual rate up to 391 percent, the report said.

Low-income buyers pay up to 3.7 percent more on car loans, and African Americans pay up to 10 percent more, according to the report.

Money transfers wired by immigrants to family members out of the country can carry 4 percent fees.

The report found that a majority of the District's foreclosures -- predominately in Wards 5, 7 and 8 -- involved borrowers who had subprime loans carrying prepayment penalties and high fees.

Singer's office also cited rent-to-own centers, which lease furniture and appliances to customers with the eventual goal of ownership. The report said customers are often charged double or triple the price of the same item obtained from a traditional retailer.

"These high-cost financial products and services can drain scarce resources from already-vulnerable District households," the report said. "Low-income residents need responsible, affordable financial products that satisfy short-term needs and offer the promise of building wealth."

Frederick Lightfoot, 58, of Brightwood, is the type of customer Singer's office is trying to protect.

In 2004, Lightfoot said, he purchased a desktop computer and printer, a sofa, table lamp and end table at USA Discounters at Hechinger Mall. Because of Lightfoot's poor credit -- outstanding child support, a repossessed car -- the Navy pensioner was charged an annual rate of nearly 24 percent. His bill totaled $6,000, for which he had to pay $327 a month. He also was charged $708 for a warranty and a debt cancellation fee of $1,121.29. Lightfoot fell behind on his payments, and the items were repossessed.

"I got to the point when I couldn't pay the bill," Lightfoot said. "I want nice things, I figured I could do it, but I couldn't it."

USA Discounters said it offered to renegotiate Lightfoot's contract and annul his cancellation fee and warranty, but Lightfoot refused.

"If the attorney general's office honestly wants to improve and help the customers, they should focus their efforts on rent-to-own, not those who are making legitimate contracts," said Timothy W. Dorsey, vice president of USA Discounters.