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Letter: Support Curbs On Payday Lending Rates

The General Assembly may consider limits on the interest rate allowed on so-called payday loans, but lobbyists are pushing against consideration.

 

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.

Sincerely,

Steve Boyajian 

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.

Franken Harpo March 29, 2012 at 04:51 PM
I'm all for payday loan reform.
Still Hope March 29, 2012 at 06:21 PM
This letter sounds like a no brainer, right? This letter is misleading. If you use 4th grade finance, you understand why. Traditional APRs do not work for Payday loans. They don't usually compound like regular loans. Instead, a typical Payday lender with charge a flat fee, say $15 on every $100. So you borrow $100 and in a week or two, pay $115. Not bad right? APRs are calculated as a YEAR, not as a week. So if this loan did compound, which it doesn't, then the APR would be like 400%. This is the scary number that law makers want you to see. The actual effective payback is 15%: $100 + $15 = $115. Simple freakin math. Look it up. Pushing the "APR" down to 36% means a lender only makes like 50 cents on every $100. Yay for law makers. Payday loans are a way for people, all types of people, to get quick cash for something immediate and have the ability to pay it back with the next paycheck. Think of it as borrowing money from a friend, except this friend actually expects you to pay them back. This legislature will not help anyone, it will ruin this avenue of money lending. It is a way to legally push out a business and usable service. I don't use Payday loans and could care less about them. Just giving you a little truth on the matter. BTW, druggies and gamblers do use these services, but not nearly as much as hard working, home owning, families do. Avg income customer: $48k.
give me a break March 30, 2012 at 08:54 AM
19.99%
Collette April 03, 2012 at 05:53 PM
What are we supposed to do when we caught in a bind if they're driven out of business? I would rather pay $10 for my loan than be charged a $30 late fee. Times are hard enough without taking away our options when we can't quite make the bills. I've had to use the service before, I was embarrassed, but it wasn't as bad as I thought it would be. They were nice and helpful.
Ginny April 05, 2012 at 03:36 AM
I find it odd that this article uses scare tactics with words like "trapped." If borrowers are trapped in any cycle it's credit cards. These loans are short term and clear about the fee. Credit cards by DESIGN are like a trap. Has anyone ever done a study on the amount of credit card debt in America vs the amount in short term loan defaults? As a percentage, of course, as there are far fewer payday loan users than credit card owners. I think you're trying to put out the wrong fire.
TimB April 06, 2012 at 05:20 PM
[...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...] The maximum loan amount is around $450. So if I took 10% of that, it's $45 - so what if I only wanted a $100 loan, then $45/4.5 is $10. That is a very reasonable rate. Are our officials wasting this much time and energy for $10? The RIHCC seem like they're targeting issues that will make them look good in the media rather than focusing on the important issues facing our economy. Let's focus on the real issues please!
John April 11, 2012 at 04:01 AM
I would like to see our government officials work on getting MORE access to capital and not make us jump through hoops in the process. My wife and I just tried to refinance our home, with the same bank that we've been with for 15 years - never a late payment. I can't believe how hard it is. I think you might find more and more people need different areas to access credit. Banks won't permit loans to some people and they only do the short-term loans for existing customers. Boy oh boy, I'm starting to think I would have a hard time getting my bank to give me short term loan, after all we've been through lately!
RobertT April 20, 2012 at 01:48 AM
36%APR for a two week loan is, what? A dollar? I will absolutely take that loan! I could make money off that short term loan! I'm all in.
Bob C April 20, 2012 at 04:55 AM
More gov't intrusion where it shouldn't belong. Oh yeah, this is New England (except NH) where the gov't is king and the private sector is the annoying court jester!
Payday Loan May 09, 2012 at 07:49 AM
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Ashlesh Sharma September 05, 2012 at 06:49 AM
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