PROVIDENCE – Woonsocket Rep. Lisa Baldelli-Hunt says lawmakers who insist on reducing the annualized percentage rate for payday loans down from the current 260 percent to 36 percent immediately are “detrimental to the cause” of reforming an industry she sees as equivalent to “loan sharking.”
Baldelli-Hunt has once again filed legislation that would cut the interest rate down to 130 percent, or a two-week rate of $5 for every $100 borrowed.
Payday lenders offer instant, non-secured money, often to people with few other credit options, at a rate of $10 per $100 borrowed for two weeks. If they kept extending that loan over a full year, the interest rate would amount to 260 percent – 10 percent interest, not compounded, over 26 two-week periods.
The interest rate used to be 392 percent annualized, $15 per two-week period, but legislation authored by Baldell-Hunt in 2010 brought that down to 260 percent.
“If you truly want reform,” Baldelli-Hunt said, “sometimes you need to do it incrementally. If we would have passed my legislation reducing the interest rate from 260 (percent) to 130 (percent) two years or last year, and we felt the interest rate needed to be reduced again, we could be working to reduce it again, possibly to 65 percent.
“I think it is important for individuals who want to see reform to understand that sometimes it happens in an incremental fashion; if you truly believe in the reform, then you wouldn’t thumb your nose at legislation that does reform an industry that is predatory.
“I see first-hand folks from my community who have had significant loss, whether it is in real estate, or their family put in a bad place from repeated borrowing from payday lenders,” Baldelli Hunt said.
Until a bill passed in 2005 exempting payday lenders from the 36 percent limit, companies like Advance America did not have a presence in Rhode Island.
“It’s unfortunate that people are spinning this industry and they try to confuse many issues,” the Woonsocket Democrat said. “But the reality is that before 2005, we did not have Advance America (and other payday lenders) in our state. If we didn’t have them then, why do we need them now? People figured out how to survive, they went to family, they cut back on spending that was potentially unnecessary – maybe they shut their cable (TV) off, maybe they got rid of a cell phone. Whatever they did, they managed. Borrowing money for 14 days, getting caught in a cycle of high interest rates, are not solving their problems. They were in a better place before that legislation passed. Residents of this state could figure out how to make it work.”
Jamie Fulmer, vice president for public affairs of Advance America, one of the major players in the payday loan business, said that is the lowest interest rate limit his company is allowed to charge of any state where they operate in the country. In an interview on Monday, he said lower rates interest would not allow them to cover payroll, office rents, utilities and other overhead.
Advance America has three offices in Pawtucket and two in Woonsocket.
He said the 260 percent interest rate assumes people that people take out the same two-week loan 26 times a year.
“That is not how customers use our product,” Fulmer said. “They use it between seven and eight times a year to meet either an emergency short-term issue or a periodic shortfall in their cash flow.
“Are there folks who don’t use this product as it is intended to be used? Absolutely,” Fulmer said. “You can say that about any other credit product in the marketplace.”
Fulmer said Advance America offers an extended payment plan option. If a customer feels he or she has gotten in over their head “at no additional cost, at no additional fee, at no additional accruing interest, we will allow them the ability to unilaterally modify the terms of their agreement and pay that loan off over a longer period of time up to four additional pay periods.
About 90 to 95 percent of their customers pay off their loan on time or within a day or two of their due date, Fulmer said.
He likened the $10 per $100 fee to other consequences of missing payments, like bounced check fees, or utilities charging disconnection or reconnection fees, saying they might cost consumers more in the long run than the interest on payday loans.
Asked if opponents of payday loans were taking away a lifeline from customers who have few other options, Margaux Morisseau of NeighborWorks Blackstone River Valley, located in Woonsocket, said, “The majority of people who take out a payday loan do not take it out for an emergency,” Morisseau said. “They take out the loans to cover ordinary living expenses.”
She pointed to research showing that 81 percent of the people who took out payday loans “say they had another option, that they could have gotten that money someplace else.”
Morriseau, a prominent opponent of payday loans, told The Call that “a couple of organizations in Rhode Island have developed alternative products. The Capital Good Fund has a payday loan alternative. Navigant Credit Union has a product called Smart Start, which is a payday loan alternative. The West Elmwood Housing Development Corp. also has an alternative.
“So for that small percentage, that 19 percent who didn’t have anywhere else to go, we now have three easily accessible products for them to go to.”
The Senate Commerce Committee held a public hearing Tuesday on legislation that would reduce the interest rate payday lenders could charge to the same 36 percent limits that apply to banks, credit unions and credit card issuers. The bill – introduced by Sen. Juan Pichardo of Providence (a similar bill has been introduced in the House by Warwick Rep. Frank Ferri) was held for further study.
Baldelli-Hunt said that while she has supported Ferri’s bills in the House, he has not supported hers.