Numerous laws have gone into effect this month in Maryland, but one law set to start in October has consumer protection experts unhappy with the state.
They say the new Maryland law doesn’t go far enough to address predatory lending practices surrounding “earned wage advances,” commonly known as payday loans, which can now be taken out via smartphone apps.
“You would download an app on your phone and take out a loan, generally a very small loan, sometimes around $90 to a max of, usually, $150. That would be due in full on your payday,” said Whitney Barkley-Denney, deputy director of state policy for the Center for Responsible Lending. “About 90% of people pay fees in order to make this transaction happen immediately.”
The loans can come with high fees, and lenders even pester consumers for tips, according to advocates.
House Bill 1294 defined these wage advances as loans and capped fees at $7.
“However, that doesn’t include what they call ‘optional tips,’ which are really just a fee in disguise,” Barkley-Denney said.
She said the apps often pressure users to leave a tip in order to get a loan. One app her group examined asked for a tip 17 times before the process was complete.
A 2023 study found seven out of 10 borrowers left a tip.
Maryland’s law does ensure that tip options are preset to $0; however, it still allows apps to repeatedly ask users to leave a tip.
The new law also neglects to place a cap on the amount of money consumers can expedite per paycheck, putting them at risk of entering a debt spiral.
“There’s no monthly cap on what someone can borrow, and so if you’re trying to take out $500, but your limit is $100 per transaction, then you’re going to have to take out five of those loans, paying those fees each time you take them out. So, we are very concerned about that,” Barkley-Denney said.
The Center for Responsible Lending’s research shows a quarter of Maryland borrowers using these payday loan apps take out at least 25 loans per year. Nearly half take money from more than one app at a time, according to their research.
The center, along with groups including the NAACP and AARP, are concerned that the new law exempts these loan apps from two key parts of Maryland’s Small Dollar Loan Act: The law exempts the companies from engaging in unfair and deceptive practices and from engaging in discrimination, the groups say.
The new law was not signed by Gov. Wes Moore but he didn’t veto it. In a letter, he expressed concern with the exemptions for these payday loan apps but said it was a step in the right direction, with more consumer protection needed.
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