Payday lender cancels plan to operate in MD

Daily Record, The (Baltimore), May 20, 2002 by Todd Karpovich

Despite forking over more than $250,000 to do business in the state, Ace Cash Express Inc. has decided to drop its payday lending business in Maryland in light of tighter lending laws.

The decision also comes after a settlement the Texas-based company reached with Colorado to stop using a national bank charter to make payday loans. A Maryland law that bans payday lenders from partnering with national banks takes effect June 1, and this prompted Ace's exit after months of sparring with the Maryland Department of Financial Regulation.

Mary Louise Preis, the commissioner of financial regulation, has been closely watching Ace, and earlier this year ordered the company to show cause why it should not cease and desist from operating as a credit service without first obtaining a state license. Ace eventually agreed to pay a $164,000 fine, in addition to $88,000 licensing in fees, and was granted licenses for its 40 Maryland locations with that settlement.

"Even though they paid all that money to do business here, we are excited about the decision," Preis said. "Our own law takes effect June 1, so that was discouraging for them."

Payday lending provides short-term, high-interest loans to people who borrow against future paychecks. Customers write a check for a future date and the lender agrees not to cash it -- usually for one or two weeks -- until the customer's bank account can cover the check.

Some payday lenders allegedly have charged more than 400 percent interest for the service, while Maryland limits interest rates on short-term loans to 33 percent.

Several payday lenders thought they had found a loophole in state laws that limit interest rates they can charge by renting national bank charters. For instance, Ace allegedly tried to evade Maryland's and other states' laws by renting a charter from California-based Goleta National Bank, but the new Maryland law and Colorado's settlement hinder that strategy.

Darla D. Smotherman, Ace's director of investor relations, could not be reached for comment.

Deborah Povich, director of public policy for the Maryland Center for Community Development, said the new law makes Maryland one of the national leaders in fighting payday lending. Povich said some consumers are drawn to payday lenders because it is a way to obtain short-term credit, but they later find they can't pay back the loan because of the related charges.

"I think this is a very positive development for consumers," Povich said. "The myth is that these payday loans help consumers, but they don't. We do need to come up with other ways to provide consumers with emergency short-term funds."

Povich said some credit unions do offer smaller loans for their customers, and that the key is getting more financial institutions involved.

The Maryland Credit Union League already is looking at expanding branches into distressed communities to take the place of payday lenders.

C. Michael Marschall, executive vice president/director of governmental affairs for the Maryland Credit Union League, said the organization still is exploring neighborhoods where residents have little means for obtaining a loan or cashing a check except through a payday lender. Marschall said Ace's decision to vacate the market removed one of the problems plaguing consumers.

"We are looking to branch out into communities that are underserved," Marschall said. "We are talking with our credit unions to hopefully get this thing off the ground."