Debate on Loan Industry, Reform To Continue In Fall
By Taaq Kirksey
WI Staff Writer
Thursday, July 19, 2007

In one of the D.C. Council’s final legislative sessions before going into summer recess Sunday, 12 of its 13 members voted last week to initially approve a law that would cap the interest that could be charged on a payday loan in the District at 24 percent.
  
Some council members characterized the industry as predatory, making comparisons to the illegal business of loan-sharking.
  
But, in a surprise to some, cosponsor Marion Barry (D-Ward 8) abstained from supporting the bill, saying that he feared the potential economic costs of the cap on the business and its employees after studying the legislation.
   
The legislation, which would cap payday loan interest at about 90 cents for a $100 loan, would make it impossible for payday loan stores to operate as they currently do, according to the councilmember.
  
“We are putting this industry out of business,” he said, suggesting that reform, rather than a cap, is the best way to go.
   
The average payday loan charges about $15 for a $100 loan, to be paid back within two weeks. Under D.C. law, banks and credit unions are subject to the 24 percent cap.
  
In a statement by Chief Financial Officer Natwar M. Gandhi, assessing the potential financial impact of the legislation, it was suggested that a cap could result in a loss of $527,000 in revenue for the District over the next four years.
   
Ward 3 Councilmember Mary Cheh (D,) the bill’s other co-sponsor, is critical of Barry’s changed stance.
  
“Marion Barry knows the damage these people do,” she said in an interview. He is “enamored of the idea that the payday lending business can be reformed. All evidence suggests that it’s the product that they sell.”
  
Ace Cash Express Vice President Eric Norrington said characterizations of the payday loan industry as being exploitive of borrowers’ needs are unfounded. “Banks are not interested in a $200 to $300-dollar short-term loan,” he said.
   
Often, poorer Americans who need such quick loans are “basically laughed out of the door” when they apply for them at traditional banks, Norrington said.
  
Some proponents of the legislation have cited that most of the city’s payday loan stores are east of the Anacostia River, where income is lower and unemployment is higher than in its more affluent northwestern quadrant. This concentration, they said, is evidence of the payday loan industry specifically targeting poorer borrowers, typically Black and Hispanic.
  
There are no payday loan stores in Ward 3, the city’s wealthiest. 
  
But Norrington said the availability of banking services in Ward 3 remove the need for payday loan services for its residents.
  
“We build [our stores] where our customers live and work,” he said, adding that residents in wards with higher concentrations of payday loan stores “use our services in lieu” of relationships with traditional banks.
  
Norrington said Ace is “certainly open and welcome to reform,” but the proposed cap would be impossible to operate under.
  
Cheh remains unconvinced, citing what she called “superficial” reforms in other jurisdictions and moves in some states to increase regulation of the industry.
  
And she’s definitely unfazed by projections of lost revenue.
    
“I don’t want that dirty money,” she said. “We’ll live without that money.”     
  
The bill will receive a final vote when the council returns from summer recess in September.