It's no coincidence that check-cashing businesses locate in poor and working-class neighborhoods. These operations, which usually move in as commercial banks move out, can be found in pawn shops, liquor stores or their own storefronts.
But no matter where they are found, check-cashing businesses have two things in common: They are unregulated by the state, and they fleece the poor. For a substantial fee, these enterprises will cash a paycheck, sell a money order or facilitate the payment of utility or other bills. However, their real pay dirt comes with the payday loan.
The payday loan, already banned in New Jersey and New York, is a process by which people can borrow against their next paycheck at interest rates nearly 20 times the state's 33 percent interest rate cap. For example, a person who wants to borrow $300 on his next paycheck writes a postdated check for $379. The check casher holds the check until the borrower's next payday. For another $79 fee, the loan can be rolled over for two more weeks. Calculated on an annual basis, the $79 comes to an interest rate of 600 percent.
Legislation will be introduced during the next Maryland legislative session to impose state regulation on the check-cashing industry. Another bill will be introduced to prohibit payday loans.
Of course, the industry claims these cash advances are not loans at all but "deferred deposits." But several states, including Virginia, have won court cases that found that "deferred deposits" were indeed loans and that the interest charged was in excess of the interest caps mandated by those states.
According to Brian A. Satisky, who heads an association of Maryland check cashers, the industry welcomes state licensing and regulation. However, Satisky wants Maryland to continue to allow payday loans and an interest rate of as much as 20 percent on checks postdated and held for two weeks.
If the check-cashing industry has its way, the state will be exempting this business from its usury laws. Instead, Maryland should follow the example of New York and New Jersey and prohibit the practice of the payday loan, which preys upon our state's poor and financially desperate.
-- Ulysses Currie
a Democrat, represents Prince George's County in the Maryland Senate.