Payday Lending Reform Dead Again in Session’s Final Hours
Wednesday, June 13, 2012
For the second consecutive year, legislation that would have placed a cap on payday loans at 36 percent, down from the 261 percent critics say the average resident faces when they take out a short-term loan, was killed in the final hours of the General Assembly session.
The bill which, had bipartisan support in both General Assembly chambers, was believed to have died thanks in part to the fact that the chief lobbyist for payday lenders was former House Speaker William Murphy.
Murphy, who owns the downtown building where Fox runs his law practice, was paid $50,000 to lobby on behalf of Advance America.
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A last-minute amended version of the Senate version of the payday lending bill would have separated check-cashers and payday lenders into two separate licenses and would have placed more restrictions on lending practices was no supported by payday reform groups.
Lenders Have Special Exemption
A payday loan is essentially a cash advance that is supposed to cover expenses until a consumer receives his or her next paycheck. The loans generally last two weeks, and in Rhode Island, cost $10 for every $100 received. The Ocean State is the only state in New England that allows for payday loans.
Supporters of the legislation have continuously argued that capping the interest rates at 36 percent would be similar to the charges military members face when trying to secure a payday loan. They say the only reason payday lenders are able to charge massive interest rates is because they were able to receive a special exemption from the state’s usury laws that allowed them to avoid the state’s small loan laws.
“There’s absolutely no reason our state should be giving any kind of exemption to payday lenders,” State Rep. Frank Ferri said earlier this year. “The current law allows them to charge families who are living paycheck-to-paycheck outrageous interest that they can’t afford, trapping them in a cycle of loan after loan that leaves them in an even more precarious financial state”
“Payday lending circumvents state consumer protections,” Senator Juan Pichardo said when the bill was first introduced. “Many of these families using their services are already financially insecure, and these ‘providers’ take advantage of that under the guise of a helping hand. This practice cannot remain acceptable in the state of Rhode Island.”
“Poor People Lose Again”
Still, critics say powerful forces got in the way of a bill that seemingly had support of most lawmakers, with the exception of House leadership.
“This is so typical. Poor people lose again,” one lawmaker who asked not to be identified told GoLocalProv Tuesday night.
According to the Center for Responsible Lending, only two percent of consumers pay the loan off in full and don’t take out another one within a year. Critics say the high-interest loans target those who can least afford to pay their substantial interest rates, causing spiraling debt for families that are already struggling.
Terms Are Straightforward
But those who supported payday loans say lenders would not be able to remain in business if the state were to cap the APR at such a low rate.
In an op-ed for GoLocalProv last month, Jamie Fulmer, a spokesperson for Advance America, defended his company, which has nearly two dozen locations in Rhode Island.
“Our Company is committed to responsible lending and to helping consumers be successful borrowers,” he wrote. “Our terms are straightforward and transparent because we want to ensure that our customers understand all the details of their transaction. We also provide strong consumer protection measures, including truthful advertising, fair collection practices and an extended payment plan, which allows customers a longer repayment period at no additional charge.”
Dan McGowan can be reached at [email protected]
