Bill to Cap Payday Loan Interest Rates Passes
Wednesday, September 19, 2007
The D.C. Council voted 12 to 1 yesterday to approve legislation that would require payday loan stores to charge the same annual percentage rate as banks and credit unions, a limit that the payday lending industry says will put them out of business in the city.
The council was not swayed by the industry's fervent lobbying during the past month or the cautionary words yesterday of council member Marion Barry (D-Ward 8), an original co-sponsor of the legislation. Barry warned that some residents would have nowhere else to go for emergency loans.
Yesterday's vote had been expected after a majority of the council voted in July to give preliminary approval to the bill, but the industry launched a hard-hitting advertising and lobbying campaign last month to try to persuade the council to reverse its position.
Council member Mary M. Cheh (D-Ward 3), who co-sponsored the bill with Barry, continued to condemn the current practices of payday lending, which have been criticized for creating a cycle of debt for customers.
"Less than 1 percent of the borrowers are able to pay it back or pay it back in two weeks," she said. "They don't provide short-term loans. They create long-term debt, and that's the whole point."
Under the legislation, payday lenders would have to adhere to a 24 percent cap on the annual percentage rate charged on a loan. With a two-week loan, the rate adds up to about 92 cents per $100 -- a stark contrast to the $16.11 fee per $100, plus additional fees and interest, permitted by current District law. Payday lenders say that 92 cents is not enough for them to continue to operate. There are 48 stores in the District.
"If they can't follow the model and live within the cap, then they should go out of business," Cheh said.
Before it becomes law, the measure must be signed by Mayor Adrian M. Fenty (D), who supports the measure, a Fenty representative said.
The Center for Responsible Lending, a national group that promotes fair lending practices, saw the council vote as another win in a national battle aimed at reducing fees for payday loans, said Jillian Aldebron, policy counsel for the group. The next target is Ohio, she said.
Willie Green, senior adviser of community and minority affairs for the Community Financial Services Association, which represents payday lenders, said that time will eventually show the council made a mistake. Payday lenders from other countries will offer unregulated loans through the Internet, Green said. Council members "will understand that reform is better than prohibition," he said. "This is prohibition."
The association was seeking a reform package that included establishing an extended payment plan for customers and limiting the number of times they could extend their loans.
In the past week, the Center for Responsible Lending and its supporters have gone head-to-head with payday lenders. The center held a news conference with three former employees of Check 'n Go, a payday lender, about the industry's business practices.
Yesterday, Check 'n Go filed a lawsuit against Micheal Donovan, a former district director of operations who publicly criticized the industry's fees, for breach of a confidentiality agreement, breach of fiduciary duty and other counts. He was served with the lawsuit as he stood outside the council chambers.
Donovan said he thinks that the industry takes advantage of low-income and working-class people who might not be able to secure bank loans.
During yesterday's legislative meeting, the first since the council's summer recess, Empower D.C., a grass-roots organization that advocates for low-income and working-class residents, staged a protest to bring attention to the sale of city property, such as the West End Library.
The council approved emergency legislation in July to sell the neighborhood library and surrounding city-owned land to Eastbanc Inc., a private developer that plans to build a library, stores and condominiums that will include affordable units.
Residents have complained that they were not properly informed of the pending sale. Parisa Norouzi, co-director of Empower D.C. and the organizer of the protest, said residents are being left out of important development decisions.
During the meeting, a half-dozen people popped up in the audience, made statements and were quickly escorted out of the chambers. "Public property is not for sale!" the protesters yelled at one point.