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Ending predatory lending: Brief filed in payday loans case

March 1, 2016: The end of the month is approaching, and your bank account is getting low. There’s just enough for groceries and rent, but then your car dies. You have to get it fixed – the bus doesn’t go anywhere near your job. So you go online and search for “online personal loans.” A broker comes up in the search results. They give you a $2,600 short-term, high-interest loan that you have to pay back in multiple installment payments. When the installment payment is due, you don’t have enough to cover the loan and your regular expenses. But the lender automatically deducts the payment from your bank account, sending you into the red and tacking on a bounced check fee from your bank to your growing debt. You sacrifice necessary repairs, groceries, and medication to put as much as you can toward the loan. But for every payment, the balance on your loan never goes down. You call to ask for a pay-off amount and find out that the amount you owe has ballooned to well above the initial $2,600. The debt piles up, making it harder and harder to get out of the hole. Once you have made all of your installment payments, you have paid thousands of dollars more than the original $2,600 loan. 

Payday lending is designed to work this way, and payday loan brokers routinely evade state efforts to curb this predatory practice. On March 1, the Public Justice Center and our allies took on one of these brokers, CashCall, Inc., by filing an amicus brief in CashCall, Inc. and J. Paul Reddam v. Maryland Commissioner of Financial Regulation. CashCall arranged for out-of-state banks to extend payday loans to Maryland consumers, then immediately purchased the loans from the banks and proceeded to collect on all of the fees, interest, and principal associated with them. The Maryland Commissioner of Financial Regulation determined that CashCall violated the Maryland Credit Services Businesses Act (MCSBA) by assisting consumers in obtaining these loans, because they carried interest rates that would be usurious and illegal under Maryland’s lending laws if they had been made by in-state banks. After complaints from over a dozen Maryland consumers regarding CashCall’s lending and collection practices, the Commissioner issued to CashCall and its president, J. Paul Reddam, a cease-and-desist order and a fine of $5,651,000 for brokering more than 5,651 loans with interest rates as high as 99%, triple Maryland’s 33% interest rate cap.

CashCall appealed the judgment, arguing that the MCSBA did not apply to it because it did not receive direct payment from consumers for arranging the loans. While the Circuit Court agreed, the Court of Special Appeals did not. The case is now before the Court of Appeals of Maryland.

The amicus brief filed by the Public Justice Center, Civil Justice, the Maryland Consumer Rights Coalition, and the Maryland Cash Campaign traces the history and evolution of payday lending, including the industry’s recent shift to predatory installment loans. In the brief, the PJC’s Murnaghan Appellate Advocacy Fellow Tassity Johnson describes how brokers scheme to profit from entrapping low- and moderate-income people in an intractable cycle of debt, even targeting low-income neighborhoods that are predominantly African American and Hispanic/Latino. The brief highlights how brokers constantly rework their practices to allow them to evade state and federal regulations intended to combat payday lending and argues that the MCSBA was expressly designed to keep up with these evasive tactics and eradicate brokers and their predatory business practices from Maryland’s consumer loan marketplace.

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