Payday Loan Debt Traps

Baltimore Sun
March 8, 2010

Despite Maryland's 24 percent to 33 percent interest-rate ceiling on payday loans, lenders have found a technicality in state regulations that allows them to charge over 600 percent in annual interest. By using a large origination fee charged through an affiliated business entity, payday lenders make up for the money they lose with the state's cap on interest rates and take advantage of many low-income borrowers. "Even the poorest, most downtrodden soul should not have to pay that much for a personal loan," argues the Baltimore Sun. "Lawmakers need to end this disgraceful practice immediately." The most time-efficient regulation for this loophole, the paper contends, would be for the state to approve pending legislation to close it -- rather than spend years trying to enforce the existing laws on the loophole itself. Lenders are fighting back and asserting the necessity of the loans they provide; but with the number of complaints issued increasing nearly sixfold between 2008 and last year, the legislature is feeling added pressure to act.
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