The House Committee on Corporations is considering legislation to reduce the legal rate of interest on payday loans from the unconscionable APR of 260% to 36%.
The bill (H.R. 7257) has been co-sponsored by 50 of 75 representatives. The senate bill (S.B. 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%. 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%, 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% 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.
AFSC-SENE; Capital Good Fund; CCRS, Black Political Action Committee of RI; City of Providence; CommunityWorks RI; Dorcas Place; Housing Action Coalition RI; Housing Network of RI; Housing Resources Commission; Genesis Center; Gloria Dei Lutheran Church; Jewish Federation of RI; NAACP, Providence Branch; Macremi; Ministry of Justice, MMM; NeighborWorks Blackstone River Valley; Northern RI Community Services; Progresso Latino; Providence En Espanol; St. Michael’s Church, Providence; St. Paul’s Church, Wickford; Univocal Legislative Minority Advisory Coalition; West Elmwood Development Corp.; Rep. Grace Diaz, Dist. 11; Rep. Frank Ferri, Dist. 22; Sen. Harold Metts, Dist. 6; Sen. Juan Pichardo, Dist. 2; Steven J. Boyajian; Reza Clifton; Janetti Conway; Shane Culliton; Rev. Patrick J. Greene; Roger Harris; Vidke Hilaire; John Longo; Craig O’Connor; Ashley Rice; Randy Rice; Tom Sgouros; and Yokota Strong