PROVIDENCE – Depending on who you listened to at the House Finance Committee hearing Wednesday, payday lenders are either providers of quick and convenient cash loans for regular folks in temporary financial straits or they are “predators,” “vampires,” “monsters” and “leeches” conniving to trap poor people in an inescapable cycle of debt at “usurious” interest rates.
Currently, while regular banks and credit unions are limited to charging a maximum 36 percent interest rate on money they lend, payday lenders are allowed to charge $10 for every $100 they lend for a two-week period. Stretched out over the course of a year, that amounts to a 260 percent interest rate.
The committee was hearing two different bills on Wednesday. One, by Woonsocket Rep. Lisa Baldelli-Hunt, would reduce the interest rate payday lenders are allowed to charge by half, to $5 per $100 borrowed, an annual rate of 130 percent. The other, by Warwick Rep. Frank Ferri, would put payday lenders under the same 36 percent annual interest rate restrictions as other financial institutions.
Baldelli-Hunt reminded the committee members that in 2010, legislation she sponsored reduced the allowable interest rate for payday loans from $15 per $100 borrowed – an annualized rate of 392 percent to the current 10 per hundred, or 260.
The Woonsocket Democrat declared that “2013 is a year that is not a matter of if payday lending reform will pass, it is a matter of what type of reform will pass because it is evident that it is time that the state of Rhode Island take action and have some type of reform. Your constituency probably feels as though how much confidence can they have in us as a delegation when we have an issue that is right before our face and we are not taking action on it.”
Before the hearing started, Baldelli-Hunt denied that the fact that her brother, Daniel Baldelli, runs Abal Check Cashing Service from a kiosk at a building she owns.
She asserted that her brother “does not do payday lending,” and as a result does not have an interest in keeping payday lenders out of the state.”
“These are two different industries,” she explained, “they just happen to be under the same license.” That is not the case in many other states, she said, where payday loans and check cashing businesses operate under different licenses.
Asked about the kiosk at her building, she said, “I don’t understand what that has to do with anything. I guess people can try to create a conflict when there is no conflict. There is no conflict.”
In 2009, Baldelli-Hunt told the panel, payday lenders in Rhode Island made about 124,000 loans totaling about $44 million. In 2010, she said, that grew to 143,000 loans for about $53 million. In 2011, the first full year after her legislation cut the allowable interest rate by one-third, the industry made 183,000 loans for $70 million.
“The argument that if you reduce the rate to 130 percent, that the industry will have to close its doors and leave the state of Rhode Island…the evidence is here that with a reduced interest rate their business increased in the amount of loans and increased in the amount of revenue.”
She said the industry does not want the rate reduced because that will show other states where the allowed interest rates are even higher than Rhode Island’s that payday lenders can survive at lower rates of interest.
Ferri argued that, if it is okay to allow payday lenders to charge 260 percent interest, why not allow regular banks and credit unions to do the same?
Ferri said a constituent told him he borrowed $200 from a payday lender and took 26 advances before it was paid off. That means the person paid $520 to get a $200 loan.
“This is gouging,” Ferri told the committee. “We need to do the right thing.”
General Treasurer Gina Raimondo testified in favor of Ferri’s bill to roll the maximum interest rate back to 36 percent.
“Allowing predatory lending in our state weakens our state,” Raimondo said, “and frankly it has no place in a state that is trying to grow. I think it hurts our families and hurts our economy. This is a predatory product designed to trap people in a cycle of debt.”
Payday lending, the treasurer said, “is hurting people, it is ruining lives, it is weakening our state and our economy.”
Jamie Fulmer, senior vice president of public affairs for Advance America, one of the principal payday lending companies in Rhode Island, says the 260 percent “implied annualized interest rate” is not a fair way of expressing cost his company charges for loans because it suggests that a customer is taking out a loan “every two weeks for an entire year.
That is not how it works, Fulmer and other Advance America employees told the House panel.
Carol Stewart, an Advance America employee, said, “The average age of an Advance America customer is 41. About half of those customers own their own homes. The vast majority – 93 percent – have completed high school and some level of college. These are school teachers, they are nurses, they are civil service workers, they are hospital workers. The median household income for our customers is $55,102 a year.
“These are not uneducated poor people who are making these decisions,” Stewart said. “These are people who are making good credit choices for themselves.
Responding to criticisms that the rest of the New England states and New York do not allow payday lending, Fulmer said Rhode Island is the only state with regulated payday lending. Unregulated payday lenders are plentiful on the Internet, he said.
Margaux Morisseau of NeighborWorks Blackstone River Valley said, “the low-income neighborhoods I work in were severely affected by payday lending.” She said people who took out payday loans paid them back before they paid their rent or bought food or medicine.
Marie Hennely of the George Wiley Center told the panel that payday lending, “is not only immoral, it is barbaric.”
She asked the committee members, “what does your conscience and your heart tell you to do?”