Monday 03 June 2013
Rhode Island’s current payday loan policies – currently under review in the General Assembly – cost the state up to $ 1.6 million per year.
Rhode Island is the only state in the northeast to allow payday loans exceeding 36%, said Margaux Morisseau of the Rhode Island Coalition for Payday Reform. In fact, Morisseau said, the state allows an APR interest rate on storefront lending companies of up to 260%. “Looking at the economic impact of payday loans in Rhode Island,” said Morisseau, “[the state] loses $ 1.6 million that would go into our local economy each year due to the cyclical nature of payday loan debt that powers businesses based primarily out of state and some out of the country.
Morriseau cited national payday loan giant Advance America, which has a national base in South Carolina but is owned by a business conglomerate based outside the country. She then gave the example of the state of North Carolina, which actually experienced an economic improvement after the repeal in 2006 of these loans. “The money that is used to pay off these loans is not going to support local businesses, buying groceries. Rhode Island pays for businesses based in other states and other countries. “
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General Treasurer Gina Raimondo has publicly supported payday loan reform, telling Rhode Island House’s finance committee that the practice “is hurting families and the economy.” Raimondo went on to say that the state was “reeling from the lack of regulation,” explaining the dangerous cycle of the practice: a person takes out a loan using ID and proof of income. The person leaves a dated check. If after fourteen days the person defaults, another loan is taken to cover the first and so on.
Rhode Island Payday Loan Reform Legislation
Representatives Frank Ferri (D – District 22, Warwick) and Lisa Baldelli Hunt (D – District 49, Woonsocket) took center stage as bill sponsors that would significantly block the activities of payday lenders, officially referred to as providers. deferred deposits. Baldelli-Hunt’s bill, H528, would reduce the amount a check cashing business can charge for deferred deposit transaction fees from 10% to 5% of funds advanced. This would reduce the annual interest on these types of loans from 260% to 130%. Ferri’s bill, H5019, goes even further by striking out the activity of deferred deposit providers as they currently exist.
Representative Lisa Baldelli-Hunt introduced her proposal, explaining that in the past, the interest rate on payday loans has been as high as 392%. Since then, legislation has reduced it to its current level of 260%. But, even with the reduction in the interest deduction, Rhode Island users, payday loan stores have grown from around 100,000 in 2009 to over 183,000 in 2011. That, she said, proves that these companies do not suffer from a loss of traffic.
Representative Frank Ferri was less kind to the payday loan business community by using descriptors such as “loan withdrawal” and “carpet bagging”. He went on to say that an initial loan of $ 350 could turn into a debt of $ 1,260. “This,” he said, “is crook. “
Smiley: Myths About Payday Loan Reform
Brett Smiley, Founder and Chairman of CFO Consulting Group which, lobbying on behalf of the Rhode Island Coalition on Payday Lending Reform, described 3 “myths” that opponents of wage reform use as the General Assembly considers the 2 reform bills.
Smiley cited the opposition’s reference to “hard data” showing companies would be leaving Rhode Island due to payday loan reform. “It’s not true,” he said. “Life goes on in other states, so individual replacement is not necessary,” he said. The second myth named by Smiley was that the reform would lead to the loss of jobs. However, he pointed out, Oregon has a business model for payday loans with 100% APR instead of 260% and these businesses remain profitable. In addition, the average annual salary of an employee of a payday loan storefront is only $ 27,000 per year. And most of the state’s payday loan stores are actually based outside of Rhode Island – many outside the country. The third and final myth, he said, was that surveys indicate that most people actually want this product. Smiley responded with a Pew Research Center poll of more than 33,000 people which found that about 74% of those polled did not support the industry in its current form.
Opposition to reform: Advance America
In a recent hearing, representatives from Advance America Company defended the status quo. Advance America spokesperson Jamie Fulmer said that with 19 locations in Rhode Island, the company contributes to the state’s economy. He said they offered a simple and straightforward product and that 260% was just “implied annualized charges”. He also said the rates were better than the overdraft fees charged by banks.
This testimonial argument was contradicted by Morriseau and the Coalition who said, “Overdrafts are caused by small accidental purchases often $ 20, not large amounts such as $ 300 like payday loans. When a person defaults on a payday loan, they will incur both insufficient fund charges from the payday lender and overdraft fees from their bank. Payday loans don’t ease the burden of overdraft fees, they increase them. This is yet another example of money that could be spent in the local Rhode Island economy but used to pay usurious sums, from Crown corporations. ”