Quick cash, high price: RI lawmakers again seek to rein in 'payday lending'

PROVIDENCE − Cars break down. Rents come due. The temperature drops. And cash-strapped consumers pull up to a storefront where desperation is answered in big green letters that say "Cash Advance."

If those words sound familiar, they appeared in The Journal in 2006 in a story about the practice called "payday lending" that rank-and-file Rhode Island lawmakers − Republican and Democrat − have repeatedly tried and failed to outlaw in Rhode Island in the face of pushback from an industry represented on Smith Hill by former House Speaker William J. Murphy.

And the Sisyphean effort continued on Tuesday, as advocates resumed their fight to repeal or dramatically rewrite the state law that allows "payday lenders" to charge annual percentage rates of 260%.

"It's been around too long," said Rep. John Lombardi, the Providence Democrat who sponsored one of the two bills up for debate. "And let me tell you this: In our neighborhoods, people go to jail for this. That's all I will say."

A spokeswoman for Purpose Financial, the parent company of Advance America, told the House Corporations Committee their nine offices in Rhode Island provide a needed service.

"Our customers are hardworking Rhode Islanders. They all have a bank account and they all have a steady source of income. The average age of our customer in Rhode Island is 49 years old. Their average monthly income is around $3,400. Around 48% are homeowners and they appreciate our products and services," said spokeswoman Julie Townsend.

"People come in and tell us ... they need some cash for medical bills, energy bills, car repair ... health insurance premiums, groceries, back to school suppliers and clothes," said Leo Sullivan, assistant manager of Advance America's store in Warren.

But Attorney General Peter Neronha pushed back.

"While proponents of payday lending like to argue that these loans provide much-needed access to credit, we know that, in reality, these types of loans are notorious for their high interest rates, which often trap borrowers into a never-ending cycle of debt," he said.

"We also know that payday lending disproportionately affects people of color, and that these types of loans are often targeted at the lowest-income neighborhoods of Providence, Pawtucket and Central Falls," Neronha said.

The AARP's R.I. lobbyist Matt Netto told lawmakers: "Payday loans are debit traps by design ... responsible for trapping low-income Rhode Islanders into a cycle of debt."

"Payday lenders are permitted to charge an astonishing 260% annual percentage rate (“APR”) before fees. By comparison, every other New England state either caps payday lending at 36% APR or prohibits the practice entirely," state Treasurer James Diossa told lawmakers in writing.

Spelling out what he saw in his former role as mayor of Central Falls, Diossa said: "Saddled with unconscionable interest payments and fees, families living on economic margins are left with few options, and either default on their loan, return to their borrowers for a second, or third loan, or are left without the financial means to cover basic livingexpenses."

Townsend, the Purpose Financial spokeswoman, disputed the descriptions of how the industry works in Rhode Island.

What is payday lending?

Payday lenders offer consumers small cash advances − less than $500 in Rhode Island − for a minimum of 13 days or until the borrower's next payday.

The borrower typically writes a personal check for the amount of the loan, plus a "finance charge." The lender agrees to hold the check until the due date, at which time the borrower promises to return with the full loan amount, plus the fee.

And when that doesn't happen, critics say, the payday loans rollover at rates that generally far exceed those on mortgages and other consumer loans.

But Townsend and Sullivan said the lenders only re-up a loan once. People cannot borrow again until they pay off the first loan. And the 260% is hypothetical, not the usual situation: $10 in interest on each $100 borrowed for each of 26 weeks.

She said: "The maximum loan is $450 because the face value of the check cannot exceed $500. So at $450 maximum loan amount, when you add the fee, the face value of the check will not exceed $500. The minimum term is 13 days. The maximum term is a month ... 30 or 31 days payable on the customer's next pay day."

What do the bills do?

One of the bills up for debate − H5160 − would repeal the current state law that allows payday lending, also called a “deferred-deposit transaction” in which a cash advance is made to a customer in exchange for the customer’s personal check or permission to debit the customer’s deposit account on a desighated date.

Rep. Karen Alzate, D-Pawtucket, is the lead sponsor. Republican Brian Newberry, D-North Smithfield, is among the 29 co-sponsors.

Lombardi's bill − H 5331 − would cap the annual percentage rate at 28%; prohibit payday loan maturity dates of less than 90 days from loan closing; prohibit fees and interest payments of more than 60% of the principal loan amount; limit the monthly payment requirement.

Add to the list of backers: Secretary of State Gregg Amore, Lt. Gov. Sabina Matos, RIKids Count and AARP, among others.

Passage of the bill "would allow Rhode Island to join the nearly 20 U.S. states (including Massachusetts, Connecticut, Vermont, New York and New Hampshire) and the District of Columbia, which have enacted legislation capping the interest rate payday lenders can charge at or around 36% in order to address the payday loan debt trap," wrote the RI Commission for Human Rights.

This article originally appeared on The Providence Journal: Quick cash, high price: RI lawmakers seek to rein in payday lending