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Brett Smiley: No More Delays On Payday Lending Reform

Thursday, June 13, 2013


It is time for Rhode Island to join the rest of the states in New England and stop exempting payday lenders from the 36% maximum interest rate that applies to all other lenders in the state.

Payday loans are short-term loans, where a borrower provides a post-dated check and receive cash immediately. These loans are provided at storefronts run by mostly large national companies such as Advanced America and Check N’ Go. These lenders benefit from a special loophole in our state’s laws that allow for interest rates of up to 280%. Sadly this legalized loan sharking forces our most economically vulnerable citizens into a dangerous, hard-to-escape cycle of debt forcing most to take out loan after loan to pay off the interest from the previous loan.

Contrary to the claims of the payday lending industry, this practice not only harms individuals but it also hurts the state’s economy. According to a recent study by The Insight Center for Community Economic Development, the payday loan industry takes a net total of nearly $1.7 million out of the Rhode Island economy. This study factored in all the economic costs and benefits of the industry. Simply put, the outrageous interest payments to out-of-state corporations are a net loss for Rhode Island at a time we need all the growth we can find.

While entrenched interests would lead you to believe otherwise, it is not true that if there are fewer storefront payday lending options people will turn to similar harmful loans available on the internet. A 2012 Pew Charitable Trust survey found no relationship between reforming payday lending and internet payday loan usage. And loans made by unlicensed lenders–including internet payday lenders–are illegal in Rhode Island and can be prosecuted by the Attorney General.

While more alternatives to payday lending need to be developed for low income borrowers, there are already many good options. Nearly nine-out-of-10 state chartered banks offer unsecured personal loans, according to a recent FDIC survey. Among banks that offer small dollar loans–including those in Rhode Island–a large majority provide streamlined underwriting to make a loan decision within 24 hours, a loan repayment period of 90 days or more and, of course, an interest rate of 36 % or less as required by law.

Further, Rhode Island has the benefit of the nationally recognized Capital Good Fund. This innovative and effective social enterprise makes safe, affordable loans to those traditionally shut out of the mainstream banking system. Additionally, they help borrowers build credit, enabling them to access traditional bank products in the future. Payday lenders typically only report defaults (and not timely payments) thereby further trapping their customers and keeping the doors of banks and other sources of credit closed to them.

Borrowers themselves report having other options to meet their economic needs–all much preferable to payday loans–including credit cards, friends, families, churches, relief societies, and savings. In fact, only 1-in-10 borrowers say they chose a payday loan because they had no other option, according to two separate studies funded by the payday lending industry. These same studies report that a majority of borrowers prefer lower rates even if it means reduced access to credit.

Payday lending reform is backed by a broad coalition of organizations in touch with the day-to-day struggles and long-term harm created by this practice including the United Way, the RI State Council of Churches, AARP, and RI AFL-CIO. Legislation to close the loophole for payday lenders–requiring the same 36% annual interest rate that applies to all other lenders–is co-sponsored by large majorities in both houses of the General Assembly. It is time for the legislative leadership in the State Senate and House to allow floor votes on this critical proposed law (H-5019 and S260). It is time we provide the same protections against sky-high interest rates to our most vulnerable citizens that we provide to everybody else. This is the year to put an end to legalized loan-sharking in Rhode Island.


Brett Smiley is the Chief Advocate for the Rhode Island Payday Lending Reform Coalition.


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not sure why you are writing a letter to golocalprov.

the general public is not killing this.

your democratic friends are killing this reform.

you know, the democrats that represent the working class, the poor, the less advantaged.


Comment #1 by jon paycheck on 2013 06 13

It should be simple. If payday lenders are operating in states where they can only charge 36% interest. Then they can do it here.

Great letter Mr. Smiley.

I'm typically all for the free markets, but we do need some protections for the most vulnerable people in our communities. Gordon Fox is as despicable as I think he is if he doesn't do something to change it.

Comment #2 by Redd Ratt on 2013 06 13

You know.... you really gotta wonder what actual good anyone thinks will come of this.

You've got people who have zip for credit and cannot get a loan anyplace. They go to some hardcore high interest rate storefront and get a loan.

Go ahead and pass legislation to put the storefront out of business...there is no way anyone is going to lend money to the target market of payday lenders... so the people who are now loan sharked end up with no loans at all.

Of course... some silly clowns will spin up some scheme about how they ought to do it anyway.. and "prove" how easy it is for the payday lenders to survive anyhow.

But you know what? The clowns advocating this are not willing to loan money to the people who go to payday lenders. They'd tell 'em to take a hike.

It is always some braindead get-rich-quick scheme in this state.

It is always some piece of trash politician(s) out to "help" people but they can't reason their way out of a paper bag. They blow a lot of smoke but have not one single clue what will be the real world effects of their legislation.

If it is so danged easy to lend money to bad credit risks at nice comfy rates... how about YOU go do it yourself... whoever you are who dreamed up this genius scheme.

Comment #3 by Caroline Evans on 2013 06 14

As I described in an earlier comment.... this kind of total-doofus thinking is what plagues this state.

It is always some sideline spectators who have no direct 'gut level' savvy about business.. absolutely no REAL concept of 'how things work in the real world' who dream up these idiot 'solutions'.

This is why RI is bankrupting itself piecemeal.... it is dominated politically by clueless wonders who simply cannot figure out what the REAL effects of their proposals will be.

In this case... we will simply see organized crime step up to the plate and take over the high rate loan business.

No one in their right mind would lend money to most of these creditors who use payday lenders... they are utterly broke and outrageously bad credit risks... many, quite simply, are not going to be able to pay back the loan.. at any rate at all.

And so... the lenders give the hose to those very few who actually DO pay to make up for the delinquencies. Absent that cash flow... no loan business at all.

Time for the FBI to buy up some wiretap gear and get ready to haul in some legislators who are bound to be on the take and working for the organized crime loan sharks who will take up the slack.

Comment #4 by Caroline Evans on 2013 06 14

Oh.. and we notice even in this advocacy piece.. the author admits that there will be less money available to borrow.

We ought to see who gets a paycheck at the Capital Good Fund.... we couldn't be reading the efforts by someone looking to shut down the competition, now could we?

Never forget.. the paid staff at non-profits are taking home money. They are in business as surely as anyone.. they just take the profits out in the form of paychecks and fees instead of as dividends and stock options.

So do not forget there is a serious and real profit motive on the part of the staffs of many so-called non-profits.

Shut down the payday lenders and all of a sudden we may well see a monopoly lender.. whose staff has job security... and handing out loans that will never be repaid.. and that 'just happen' to be funded out of taxpayer-funded grants... that will be sadly begged for with big sad puppydog eyes... by the paid staff of some 'non-profit lender'.

In that case... it is not the borrower who gets the hose... it is the taxpayer.

And so.... we need not be concerned that any good will come of this proposal.... it won't. It just a matter of what substitute evil will take the place of payday lenders.

Comment #5 by Caroline Evans on 2013 06 14

Oh yeah.. do make sure you click on that Capital Good Fund link.

What a "marvelous' impression it makes.

We cannot help but note a popup begging money is the first thing that happens. And notice how the donations will be used... "coaching".. which means a paid staff member who is an expensive substitute for a trifold pamphlet. They will read some SBA pamphlets to the 'client' and collect a paycheck and call it coaching.

It figures... it just figures.... here we see the real motives... it is the competition to the payday lenders... looking to ensure they have the 'broke, no money, no hope, ultra-desperate people' market cornered.

Nope.... here we see a too typical useless activity... it is ever thus.. it is an effort to provide employment to people who are going to provide token and meaningless 'services' under the guise of being helpful.

This is too perfect.... another form of exploitation... a lot of promises about how this marvelous counseling will be so ultra useful.. and then the poor person who got sucked in finds out it was a waste of time because the 'coach' is not in business... and is reading them a pamphlet.

Comment #6 by Caroline Evans on 2013 06 14

And take your time and get a good look at the team at Capital Good Fund.

Not a one of them has a particle of business experience of any meaningful sort. This is a simple and outright student project... it is like kids running a lemonade stand in their front yard offering coaching to restaurant franchisees.

And THIS bunch of amateurs with absolutely zero experience and no worthwhile qualifications is going to smarten up somebody else??????

Good God... this is about the very most perfect example of setting up a non-profit as a substitute for getting a real job.

I am a tax pro of 25+ years experience.. 12 of them I was licensed to practice law in Tax Court. I served a number of businesses from founding to success. My favorite success story went from being a parttime kitchen table operation to being a wholesaler who grossed about $2-1/2million per year.

I have also help found some non-profits.

Let me tell you my professional view of Capital Good Fund.... it looks like it is just a sinkhole looking for grants and donations so as to pay the unqualified staff to play at providing 'expertise' to others .. expertise they simply are totally unqualified to provide because they simply do not possess it.

They are grossly over-staffed and have provided incredibly negligible services especially given the number of people running around with fancy titles.

This is people playing... and I MEAN playing... this is not a serious activity.

Comment #7 by Caroline Evans on 2013 06 14

If companies can make it work for 36% in other states, why not here. Have another drink.

Comment #8 by Redd Ratt on 2013 06 14

What reform? I don't understand tut

Comment #9 by Anny Robinson on 2013 07 04

Sorry, could you please explain in details about this reform?

Comment #10 by Anny Robinson on 2013 08 09

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