|Ward 3 Councilmember Mary Cheh, chair of the Committee on Public Services and Consumer Affairs, sponsored the Payday Loan Consumer Protection Amendment Act of 2007.|
The Council of the District of Columbia recently enacted legislation that subjects payday lending to the District’s 24 percent interest cap. The law, which states that the current payday lending paradigm is no longer authorized in the District of Columbia, will be effective January 9, 2008, and that payday lenders will need a Money Lenders license to engage in this activity.
“This is a consumer protection measure intended to prevent the perpetual cycle of debt from entrapping some of our most vulnerable residents,” said DISB Commissioner Thomas E. Hampton. “DISB supports efforts to mitigate lending practices that are not in the consumer’s long-term best interests.”
The Payday Loan Consumer Protection Amendment Act of 2007, sponsored by Councilmember Mary Cheh, chair of the Committee on Public Services and Consumer Affairs, was signed into law October 3. DISB recently issued a bulletin to the District’s payday lenders, instructing them to either cease further activity or be re-licensed and comply with the 24 percent interest ceiling. Licensed parties may continue to service existing loans, but may not take applications for new loans, or roll over or convert existing loans into new payday loans once the law becomes effective.
Payday loans are small, short-term cash advances made to borrowers strapped for cash. The loans are secured by a personal check for the principal and fees. The lender holds the check 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. Thus, payday lenders were able to charge triple-digit interest rates. Although the District’s usury law caps interest on consumer loans at 24 percent, payday loan fees were often the equivalent of an annualized interest rate of more than 400 percent. The new legislation subjects payday loans to the same cap as other consumer loans.
Consumers with questions or concerns about this new law are encouraged to contact DISB at (202) 727-8000 and speak to the Banking Bureau’s Consumer Complaint staff. The bulletin may be found on DISB’s website at disb.dc.gov.