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Payday lenders may run out of cache in D.C.
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Despite objections from D.C. CFO Natwar Gandhi, the City Council moved ahead Tuesday on a bill that would restrict the sky-high interest rates levied by so-called “payday” lenders.
The bill, introduced by Council Member Mary Cheh, D-Ward 3, places a 24 percent annual percentage rate cap on interest charged by the lenders. Now, the businesses can offer two-week quick cash fixes without any city restrictions. The measure passed the council on an initial reading Tuesday.
D.C. Chief Financial Officer Natwar Gandhi Tuesday provided the council with a fiscal impact statement that predicted the city would lose $123,000 in revenues in fiscal 2008 and $527,000 through fiscal 2011 if the measure passed. The city reaps money from taxes on the lenders.
But Council Member David Catania suggested Gandhi should butt out of the council’s business.
“What exactly is the CFO thinking producing documents like this for this body?” Catania asked, questioning the wording of the statement. He called the fiscal impact statement “the most bizarre” document of the type he has seen.
Cheh was also visibly angry over the fiscal impact statement after the vote.
“What the CFO has focused on is whether we’re spending more than we’re bringing in. If this is his new front in financial supervision, well, then he might as well put himself in charge of the entire District government,” Cheh said.
There are 49 payday lending shops in the District, located predominantly in lower-income, minority areas. Many of the lenders are near the Maryland border because Maryland does not allow such loans.
Council Member Marion Barry, D-Ward 8, had co-introduced the bill with Cheh. But Tuesday he backed off the legislation and abstained from voting. Barry, who did not offer any amendments, said he wanted to reform the businesses, not force them out.
Gandhi wrote that the likely outcome of the bill would be cessation of payday lending in the District.
CFO spokeswoman Maryann Young defended Gandhi.
“There’s no policy determination in the fiscal impact statement,” Young said. “There is a fiscal impact in this legislation and we quantified it — it always makes council members nervous to vote for legislation that has a fiscal impact.”
cmabeus@dcexaminer.com
Comments from Examiner Readers
10:45 PM MST on Wed., Jun. 4, 2008 re: "Ohio governor signs new law on payday lending"
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Examiner Reader said:
I work for a lender. Your loans will be due in full on your due date. Ohio law does not allow paying a loan back in multiple payments (unless otherwise arrainged). Maybe they should've started with a new law for THAT!
2 agree | 1 disagree
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Examiner Reader said:
As a person caught in this never-ending trap I am concerned as to how I will be able to pay off these loans. Will they let me convert it into smaller payments? I am really worried about it.
2 agree | 1 disagree
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Examiner Reader said:
It is in the best interest of payday lenders and customers to base loan amounts according to income to insure that customers have the ability to pay them back. Income based loans is not a revolutionary idea and should be a practice that is already in tact. In addition, maximum loan amounts are already regulated and lenders are also subject to annual audits. Reformists assume that people aren't competent enough to make their own financial decisions and continue to use valuable resources to attempt to eliminate certain options. I don't want anyone to legislate my finances.
77 agree | 72 disagree
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Examiner Reader said:
I wonder how far this nanny crusade intends to go. As the mortgage crisis thickens, I worry they'll pass laws preventing me from taking a 2nd mortgage. This certainly sets precedent, since government is clearly eager to step in and manage all our financial options (with our blessing no less). And for some folks, paydays are among the only option, since they're already restricted by bad credit, living paycheck to paycheck. I honestly don't know how this babysitting will truly help.
90 agree | 105 disagree
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middleclass2008 said:
Payday loans are exactly the same as LOANSHARKING. You can thank your lovely congress for making that legal again. I'm glad to see someone stopping this fiasco.
192 agree | 115 disagree
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LOANSHARK HUNTER said:
I was at the council meeting with Rev. Hagler in support of this bill. Thank you to the council for approving this bill. On the June hearing date, I testified about my own experiences having been caught in a payday cycle of debt, and I am ashamed that Marion Barry doesn't have the guts to do whats right. It is a new Washington DC, Mr. Barry, and your old school chronyism is dead. It is also interesting to note that in June the payday lobbyists paid people to show up in a disgraceful display of support for an evil product. I didn't see any of those people there yesterday - only good people concerned about the welfare of their city. GO HOME LOANSHARKS!!!
173 agree | 121 disagree
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Frank Brown said:
It is interesting that the DC Council is contemplating eliminating a valuable credit option without offering any alternatives. The reason people choose the payday loan option is because it is a cost effective alternative to overdraft charges or unregulated and more expensive internet options.
172 agree | 129 disagree
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Examiner Reader said:
The article falsely states that payday lenders in D.C. operate with no restrictions. The fact payday lending IS regulated in the District of Columbia and in 37 states. The current D.C. regulations include: A maximum fee of 10 percent of face amount of check plus a $5-$20 fee based upon the face amount of the check (example of the fee on a $100 advance is $16.11); a maximum loan amount of $1,000 (maximum amount of customer's check or checks); a maximum loan term of 31 days. In addition, all fee schedules must be posted in English and Spanish. The D.C. Council's proposal to cap interest rates on payday loans at 24 percent APR is essentially a ban on the industry. If passed, the maximum fee a lender could charge is 92 cents per $100 loaned. Payday loan stores in the District would be forced to close their doors, putting hundreds of employees out of work and denying thousands of D.C. residents access to a popular, regulated short-term credit option.
163 agree | 180 disagree
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Response to Fouie said:
I am glad you have decided to contribute half a million of your own money to the city to pay for this bill you support. When can the city expect the check? Oh wait, you mean you want me to help pay for your do-gooderism? Who needs a payday loan when you can just have the DC council spend other peoples money.
181 agree | 123 disagree
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fouie lapopo said:
The sooner the better. Its outrageous that the CFO would use the loss of 500k in city revenue to argue against this bill. a drop in the bucket in the grand scheme, really.
176 agree | 135 disagree
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Examiner Reader said:
Good for the city. Its the right decision irrespective of the finacial loss. Its about time city officials do the right thing without glaring at the dollar signs. Ray Bass
167 agree | 187 disagree
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Mike Licht said:
This council action is long overdue. Two of these usurers are located near the Marine Barracks in SE so they may prey on those in uniform, a popular practice wherever this vicious commerce is allowed to fester.
175 agree | 142 disagree
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