To the editor:
The Rhode Island House Committee on Corporations is considering legislation to reduce the legal rate of interest on payday loans from the unconscionable APR of 260 percent to 36 percent. The bill (H-7257) has been co-sponsored by 50 of 75 representatives. The senate bill (S-2307) is co-sponsored by 26 of 38 senators. Because of the likelihood of passage, lobbyists for payday lenders are trying to make sure that the bills never get a vote in either chamber.
Payday loans are marketed as short-term solutions to a cash shortage. In reality, borrowers get trapped in a cycle of borrowing at unconscionable interest rates. The family that couldn’t afford to pay expenses before obtaining a payday loan now has to shoulder the burden of triple-digit interest on a low risk loan as well. When a loan is repaid, the borrower generally needs to obtain a new loan to pay living expenses until the next pay period. Once the cycle begins, the interest paid consumes an increasing portion of the borrower’s income as the size of the loans obtained increases over time.
The payday loan becomes a long-term obligation where the interest paid far exceeds the amount of the loan obtained. The financial impact of obtaining a payday loan for the full amount of a paycheck is the equivalent of a taking a voluntary 10-percent pay cut at a time when you can least afford it.
Rhode Island is the only New England state which allows payday lenders to charge an APR in excess of 36 percent. The payday loan exception to Rhode Island’s usury laws was enacted in 2001. In 2007 Congress banned payday lending to military personnel at rates in excess of 36 percent finding that the threat presented to military families by payday loans was a threat to national security.
Where high interest payday loans have been abolished, the availability of small consumer loans at 36 percent has increased substantially. Despite these facts, the lobbyists sent by the payday lending industry are trying to convince the
House Committee on Corporations that Rhode Island’s citizens could not survive without payday loans. In fact, Rhode Islanders have survived for decades without high interest payday loans just as military families and the residents of every other New England state do today.
Given these facts, it is a moral imperative that the House and Senate Committees on Corporations recommend passage of payday loan reform.
Previous articles on this topic:
- , Jun. 16, 2011
- , Jun. 17, 2011
Editor's Note: According to information posted online by the Rhode Island General Assembly, the House Committee on Corporations recommended the bill be held for further study on Mar. 14. No action has been taken by the Senate following the bill's introduction.