Payday Loan Laws in the State of Maryland
Delving into State Regulations: Payday Loan Rules in Maryland
In contrast to the multitude of laws on payday loans, Maryland has only one statute concerning such transactions. The Criminal Law Code §12-301 outlines what payday lenders can and cannot do when providing payday loans to those in Maryland. Section (a) details the practices that are prohibited and as follows:
The statute then goes on to explain the legal exceptions for loans that can be charged a "finance charge," which are consumer loans with a minimum principal amount of $1,500.00, billed finance charges that do not exceed 2.00% of the principal per month, and must have a minimum loan term of at least four months.
(b) Exceptions.-This section does not apply to:
(1) A loan that is charged a "finance charge" within the meaning of Article 11-201(b) of Title 11 of the Commercial Law Article; provided that the principal amount of the loan:
(i) Is at least $1 , 500;
(ii) Is not secured by real property or a certificate of deposit; and
(iii) May not be prepaid in full or in part by the borrower before 4 months from the date on which the loan is made;
(2) A loan made under a principal amount credit card system; provided that the annual percentage rates charged on the loan do not exceed 2% per month;
(3) A loan that is charged an annual percentage rate that does not exceed:
(i) 2% in a month; or
(ii) 24% in a year
(4) A loan made under a federal program, if the program is authorized by an act of Congress.
There is a $56.00 cap on fees a lender can charge for cashing a $400.00 check on a payday loan. These regulations place a notable difference between Maryland and Virginia payday loan laws. In Virginia, lenders can charge checks with fees up to $15.00 per $100.00, and even higher if a borrower is unable to repay the loan at the end of the pay period. Maryland also requires a licensed lender to provide a repayable schedule and calculate a borrower’s total interest and fees so that they can be fully aware of their repayment amounts.
Legal Loan Alternatives in Maryland
Marylanders in need of short-term financial relief have legal alternatives to payday loans. While Maryland does not permit payday loans, state-chartered credit unions do offer small loans as an alternative. A consumer may also take out a personal loan from a traditional lender. Consumers are also offered access to some low-to-no interest short-term credit products through state programs administered by non-profit organizations. These options, however, are generally only available to low-income consumers.
Credit Unions
All state-chartered credit unions in Maryland are permitted to make small loans up to $1,000. Summary of loans for Maryland Credit Unions (June 2020). Loans cannot be more than $1,000, and the term must be no longer than three weeks. A portion of the interest goes into a "non-transferrable" account that the borrower cannot access. A portion is set aside in a reserve account for default, and the remaining portion accounts for the fees, processing and other costs. Id.
Personal Loans
While Maryland prohibits payday loans, some traditional lenders are permitted to make unsecured personal loans. Unsecured personal loans are short-term loans extended without a lien on the borrower’s property, vehicles and other collateral. A personal loan is unsecured and therefore does not require a borrower to pledge collateral. However, the lender may require a borrower to have good credit or two or more co-signers.
Financial Assistance Programs
Marylanders also have access to some low or no interest short-term credit products through state-administered programs. For example, the Maryland Temporary Cash Assistance (TCA) program provides cash assistance to eligible recipients. Financial assistance through the TCA program is not a loan, but instead a grant. The maximum amount of time that a household can receive assistance from TCA is 60 months.
Penalties for Unlawful Payday Lending
Illegal payday lending in Maryland can result in severe penalties for lenders, including substantial fines. When a broker or lender engages in unlawful lending activities, they may be subject to a civil penalty of up to $5,000, and if the lender is a corporation, that penalty can increase to $20,000.
Depending upon the severity of the violation of the Maryland code, punishment can be serious. If a violation is willful, a lender may be required to pay treble damages (or three times the amount of the harm caused) to the victim as well as any litigation costs. Individuals who violate the peddling laws in a willful manner may be guilty of a misdemeanor and imprisoned for up to 60 days.
Payday loans are illegal in Maryland, and there are a variety of ways in which a lender who violates this law can be penalized. The federal government also regulates payday lending activities to some extent by prohibiting certain practices that may otherwise distort the competitive federal market for small loans.
For individuals who have fallen into the trap of illegal loans that carry excessive fees, aggressive debt collection actions can pose a great risk to personal finances. Under the Maryland code, individuals who were victims of illegal lending practices can sue for damages, attorney’s fees, and treble damages for any statutory violations. Consumers can also file an informal complaint with the Maryland Commissioner of Financial Regulation.
Rights and Protections for Consumers in Maryland
Maryland provides the following protections and rights for consumers: It shall be unlawful in any action subject to the provisions of this title for any creditor, or any assignee of any creditor, to charge, contract for, or receive a fee or charge greater than the sum which he is entitled to be paid therefor. A violation of this section is a violation of Title 13 of the Commercial Law Article, the Maryland Consumer Protection Act, and is subject to enforcement under that title. No seller, lender, or other person engaged in the business of soliciting, granting, making, purchasing, holding, assigning, collecting, or enforcing any consumer credit charge account, revolving charge account, or other consumer credit account shall use unfair or unconscionable means to collect or enforce payment of the obligation. A violation of this section is a violation of Title 13 of the Commercial Law Article, the Maryland Consumer Protection Act , and is subject to enforcement under that title. No seller, lender or other person engaged in the business of soliciting, granting, making, purchasing, holding, collecting, or enforcing any consumer credit charge account, revolving charge account, or other consumer credit account shall take any unconscionable advantage of any seller or buyer in the collection of any amount owed by the seller or buyer on the account. A violation of this section is a violation of Title 13 of the Commercial Law Article, the Maryland Consumer Protection Act, and is subject to enforcement under that title. Title 12 of the Maryland Commercial Law article is titled "Consumer Loans" and outlines the restrictions on lenders, including payday lenders, who wish to make loans to consumers. These include: Restrictions The Maryland Insurance Commissioner may promulgate regulations to prevent unfair, deceptive, and abusive acts and practices.
Ways to Prevent Predatory Lending
To identify predatory lending practices, you should do your homework on lenders, loans, and your financial circumstances. Research lenders. You can find out a lender’s licensing status by visiting the NMLS. In addition, consult with the Better Business Bureau about complaints against the lender. The BBB can provide additional detailed information about the lender’s business practices. Read before you sign. Just because you are taking out a loan does not mean you just sign on the dotted line. You must also read all of the fine print on the contract and any other consumer educational materials. Legitimate lenders will want you to understand the loan agreement and your obligations so you can fulfill them. You need to understand how much you owe, how long you have to repay it, the interest rate, and how to make payments. Ask questions and have your most financially literate friend or family member review the loan documents with you . And as a safety measure, get agreements in writing. Improve your credit history. The Federal Trade Commission (FTC) provides a good discussion of how to rebuild your credit history. Consumers should generally make all payments on time, even if they cannot afford to pay the whole amount. Make sure to keep copies of old bills and account statements. If an account has been paid, have the creditor report it to the credit bureaus and request to have the payment recorded. Seek financial counseling. The National Foundation for Credit Counseling provides a list of organizations that might be able to help. But be cautious when choosing an organization to provide credit counseling, bankruptcy, and related advice. Loan sharks operate illegally and therefore do not charge interest rates that are regulated by the state or provide written contracts and disclosures. Remember: "If it sounds too good to be true, it probably is."