Commissioner Thomas E. Hampton of the DC Department of Insurance, Securities and Banking (DISB) today testified that DISB is in support of the “Payday Loan Consumer Protection Act of 2007” (Bill 17-132), which amends the Check Cashers Act of 1998 to restrict certain lending practices by payday lenders.

“DISB supports any efforts to eliminate the abusive practices sometimes associated with payday lending,” said Commissioner Hampton at a hearing before the Council of the District of Columbia’s Committee on Public Services and Consumer Affairs. “In many situations, payday lenders take advantage of consumers who believe that this type of financing is the only option available and, therefore, are willing to accept whatever cost is levied.” The legislation is co-sponsored by the committee’s chair, Councilmember Mary Cheh (Ward 3) and Councilmember Marion Barry (Ward 8).

The hearing considered an amendment to eliminate payday lenders’ exclusion from the District’s usury law. The District’s existing usury law caps interest on unsecured loans at 24 percent. The current payday loan fees are often the equivalent to more than 400 percent annual interest. The legislation would subject payday loans to the same cap as other unsecured loans. Payday loans are typically small, short-term cash advances made to borrowers in need of cash. The loans are secured by a personal check for the principal and fees. The lender holds the check usually until the borrower’s next payday. At that time, the borrower has the option of allowing the lender to deposit the check or “roll over” the loan, if unable to repay at the initial due date.

Commissioner Hampton said that payday lenders generally market the loans to low- and moderate-income residents, and those with poor credit. They often target consumers without traditional banking relationships, military personnel and other consumers who ordinarily have no savings and live paycheck to paycheck. Payday lenders generally impose only minimal requirements to qualify for a loan.

DISB regulates the financial industries in the District of Columbia, including payday lenders and check cashers, as well as insurance companies, securities brokers, investment advisors, District chartered banks, mortgage lenders and brokers, and other financial-service providers.

Note: A full copy of the commissioner’s testimony is available at your request.