“Stifling usury in Maine” is an attention-getting headline for a newspaper editorial. Those words certainly caught my eye when they appeared in the Sun Journal recently. In commenting on L.D. 788, “An Act to Establish Consumer Protections and Regulations for Deferred Deposit Loans,” the editorial page made it clear (April 7) it sees no value in expanding the business practice of so-called payday lending in Maine. This bill would have dramatically altered regulation of payday lending institutions in Maine, and would have removed this activity from the oversight of Maine’s Consumer Credit Code, the set of laws that apply to all other types of consumer loans and credit sales.

Legislators know a bill is going to be contentious when they hear about it from both supporters and opponents before the public hearing has even been scheduled. That was the case with L.D. 788. As co-chair of the Joint Standing Committee on Business, Research and Economic Development, I heard about this bill from fellow legislators and advocates on both sides of the issue as it was assigned to our committee.

Payday lending businesses offer short-term, immediate loans to persons who meet two criteria: a steady paycheck and a checking account. The borrower writes a check for the amount they wish to borrow plus a fee, and receives the loan amount. Most loans are written for a one-week period, but the customer can “roll-over” the loan by paying another administrative fee. Some present this as a convenient service, while others describe it as a predatory lending practice that traps a person into an overwhelming debt cycle. There are six payday lending businesses currently in Maine, and they are closely regulated by the Office of Consumer Credit Regulation. Loan amounts are limited, as is the fee that can be charged, and the types of debt collection techniques that can be employed by these companies.

The public hearing for L.D. 788 included alarming stories of consumers duped into paying hundred-fold interest payments on what they had intended as a very short-term loan. We did not hear directly from any users of the payday lending product, but instead were presented with opposing studies conducted or commissioned by the industry and its opponents.

One major concern that came out of the public hearing process was the impact this legislation may have on the future of the Brunswick Naval Air Station. The committee was provided with testimony that the presence of payday lending in a state is considered one of the top 10 key issues for The Department of Defense/States Military Partnership. “Payday lending practices have proven to be detrimental to service members who have chosen these loans as a way of overcoming immediate needs for cash,” reported a retired Navy commander.

Some of the more predatory of these businesses are seen as targeting military personnel, who actually risk court-martial, loss of security clearance and, in some cases, military discharge for serious personal debt problems. Our committee is very focused on maintaining for the BNAS Advisory Committee a positive state policy on this issue.

I believe our committee members were successful in responding effectively to this legislation. In a unanimous report, we stripped the language and title of the bill; in effect killing the original version of the legislation. Rather than walk away at that point, we amended the bill to become a resolve, which directs the Office of Consumer Credit Regulation, in consultation with the Office of the Maine Attorney General, the banking and lending industry and consumers, to study the overall issue of sub-prime consumer lending practices in Maine.

In our discussions, committee members brought up a variety of concerns related to credit options for citizens with inferior credit histories or low income. We discussed significant increases in credit card interest rates when the consumer is late on other debt service; rent-to-own agreements where the consumer may spend many times the actual value of the item in order to rent it, yet never own it; and even the income tax return advances offered by some businesses, which come with hefty service charges. Part of this evaluation will consider if the payday lending business model has a place in Maine’s financial market; and if so, how can it be adequately regulated? We will also evaluate what avenues are available for consumers needing education and assistance with debt management.

There is a balance we constantly monitor and adjust, between regulating businesses and informing and educating consumers. The study will provide a close examination of the sub-prime lending market, so that we can determine what we need to do to maintain that important balance.

Our committee wants to understand the options available for those people in the sub-prime lending market. We want to evaluate the risks and opportunities associated with those options. Our goal, once the Office of Consumer Credit Regulation reports back early next year, is to share that information with the public.

Rep. Nancy E. Smith lives in Monmouth. She represents House District 80, which covers Wales, Monmouth and Litchfield. She is the House chair of the Joint Legislative Committee on Business, Research and Economic Development. She and her husband own and operate Snafu Acres Dairy Farm.

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