BALTIMORE – A Maryland payday lender is avoiding a state cap on interest rates by fudging the definition of the type of loan it offers and partnering with an out-of-state bank, a coalition of consumer advocacy groups charged Tuesday.
ACE Cash Express, with 41 locations in Maryland, is operating without a credit service license and brokering loans through Goleta National Bank in California, says a report released Tuesday by the Maryland Public Interest Research Group and other coalition members.
The study says ACE is violating a new state law effective in June prohibiting companies from brokering small loans with interest rates over 33 percent.
The payday lender had offered loans for about a year when it was approached by agents from Maryland’s Division of Financial Regulations, who alerted them to the new rules.
The agents later ordered the company to stop issuing such loans.
ACE fought the order and is awaiting a December hearing. They continue to offer loans.
The details of the coalition’s study were read on a busy corner in Baltimore, near an unrelated check-cashing establishment.
“Consumers who have to work hard to make it from payday to payday are especially vulnerable to the financial bite of this expensive credit,” said Gigi Kellet, MaryPIRG spokeswoman.
Because there is a high probability that improprieties could occur, companies that facilitate loans or that actually offer loans must have a license, said Mary Louise Preis, Maryland Commissioner of Financial Regulations.
“While they say they are not a loan service, I cannot see how they could not consider themselves one,” Preis said.
Neither ACE Cash Express nor Goleta National Bank would comment for this article.
Payday lending works by allowing a customer to write a check to the lender for the loan amount plus a fee. The lender agrees to wait until the client’s next payday, usually about two weeks, before cashing the check. While the borrower gets cash immediately — a good source for emergency money — critics say it’s a debt trap.
“These lenders are making an incredible amount of money with these loans,” said Deborah Povich, who works with Maryland Center for Community Development.
Povich, whose organization also took part in the study, said more attention should be paid to the issue as the economy sours and low-income earners become more likely to use such services.
“If you are borrowing half your check then how can you possibly pay it back in a reasonable amount of time,” Povich said.
The report surveyed 235 lenders in 20 states and recorded a growing tactic by lenders to avoid state legislation – the same technique used by ACE. Lenders increasingly are joining with large financial institutions to offer services at very high interest rates.
ACE was also cited by the Colorado Attorney General’s Office over the same issue, and in Ohio was charged by state regulators with unlicensed loan activity.
In Massachusetts, banking regulators shut down a Mail Boxes Etc. in Boston after officials found the retail outlet making loans through a Rehobeth Beach, Del., bank, violated licensing requirements. The loans the outlet made carried an annual percentage rate of over 476 percent and as high as 2,190 percent, said the report. The national average interest rate for a payday loan was 470 percent with an average fee of $18.00 to borrow $100 for two weeks, said the report. Most lenders do not disclose rates unless asked. – 30 – CNS 11-13-01