In a powerful move to protect Washington, DC citizens from predatory payday lenders, the District of Columbia Council removed an exemption from the District's 24 percent cap on annual interest for consumer loans today. The vote is likely to encourage other states to pass interest rate caps to stop predatory payday lending—industry-supported measures have failed to control loan flipping in states where a usury cap is not enforced.
The Council vote reversed an exemption passed in 1998, which allowed payday lenders to charge interest rates of 350 to 550 percent and authorized their practice of trapping borrowers in long-term debt. District payday borrowers have been paying about $3 million per year in fees for loans they cannot afford to pay off without taking out another payday loan.
"Payday lenders deprive people of the opportunity to get a toehold, to get ahead," said Councilmember Mary Cheh after today's final reading in the Council chambers. "They steal money, they steal futures."
The Payday Loan Consumer Protection Act was introduced by Cheh and council member Marion Barry. Barry later withdrew his support, but after an intense public fight, the Act survived heavy lobbying by the industry and retained the support of the the council, passing 12-1.
In opposing the bill, Barry said 60,000 DC residents use payday lending, making 700,000 transactions per year. Advocates pointed out that this is an average of nearly 12 loans per borrower, further evidence that borrowers are trapped in long-term debt.
Council member Yvette Alexander said, "If you're in debt, in dire straits, the last place you need to go is to a payday lender."
Several states are considering capping interest rates for consumer loans at two digits or removing exemptions from existing caps to combat payday lending's usurious interest rates. In Ohio, legislators are expected to debate such a measure this session.
For more information: Kathleen Day, (202) 349-1871 or firstname.lastname@example.org; Sharon Reuss, (919) 313-8527 or email@example.com, or Ginna Green, (510) 379-5513 or firstname.lastname@example.org.