In a victory for Maryland consumers, the Senate Finance Committee on Tuesday ended debate on SB 762 and voted to send the bill on to the full senate. The bill regulates refund anticipation loans (RALs) that consumers take out against their anticipated tax refunds. These loans are typically loaded with outrageous fees and extremely high interest rates. The bill would not eliminate the loans but would require clear disclosures to consumers about their true costs.

As MCRC Executive Director Marceline White said in her prepared testimony, “Lenders target low-income individuals who may not have adequate information about how soon they can receive their refund nor what types of charges are excessive. RALs take money from hard-working families in Maryland, and the majority of RAL users qualify for the Earned-Income Tax Credit.”

Lawmakers also considered another legislative priority of MCRC: payday lending. The House Consumer Protection and Commercial Law Subcommittee passed HB 79, which closes a loophole that allows shady lenders to circumvent Maryland law limiting excessive loan rates, and sent it to the full Economic Matters Committee. It is unknown when companion legislation, SB 678, will get a vote in the Senate Finance Committee.

“Recently, a 30-year-old Maryland woman got an online payday loan from a Utah company called CashNDash. The online loan agreement included a payroll deduction or wage assignment provision.  Her employer received a so-called “wage garnishment” (it did not comply with Maryland law on wage garnishments) more than a year after the payday loan. The original loan was $300.00 in November 2008, and at 651.79% APR, the amount claimed is now $2,625 in February 2010.  The payday loan has forced her to consider filing for bankruptcy,” Marceline White testified.

“SB 678 clarifies that all fees be included within the 33 percent cap. Closing this loophole protects Maryland consumers from predatory payday lenders and is consistent with past actions the Maryland legislature has undertaken to maintain a 33 percent rate cap in the state.”

The Senate Finance Committee on Tuesday considered regulation of the debt settlement industry. Marceline White testified on this issue, along with two Maryland consumers who lost thousands of dollars to separate debt settlement schemes.

“In Maryland, the number of complaints about debt settlement companies has risen 144 percent in three in just three years according to the Attorney General’s office. If reports from other states are indicative, this increase is just the tip of the iceberg in terms of the number of consumers negatively affected by contracting with a debt settlement firm,” White testified. “Maryland needs to act to regulate the industry and protect consumers. Consumers contact debt settlement companies to try to dig out of debt; instead many find themselves in deeper debt, with worse credit, and increased collections activity."

The Senate is forming a working group to study the issue further, and MCRC is expected to be part of that effort.