From RI General Treasurer, Gina Raimondo:
(See paragraph 9 for CGF name drop)
Protect R.I. from these abusive lenders
GINA M. RAIMONDO
Rhode Island’s economic outlook is directly linked to the financial well-being of its citizens. When Rhode Islanders are empowered to make informed, responsible financial decisions and can access capital on fair terms, our economy can prosper.
We cannot build strong communities if our families are mired in debt and constantly worried about their financial footing. Some of these challenges may be mitigated or avoided through a greater understanding of personal finance and the dangers of risky lending products.
As treasurer, my office is working with local nonprofits and financial institutions to offer financial literacy programs to a wide range of Rhode Islanders. We are also working with the state’s financial institutions to ensure greater access to safe, low-cost financial products.
We must protect Rhode Islanders from abusive lending practices that impair our state’s economic success. One such practice is payday lending. With numerous economic challenges, Rhode Island cannot afford to permit the sale of a financial product that traps many consumers in a cycle of debt.
A payday loan is a small, short-term loan secured against a customer’s next paycheck. A borrower writes a personal check for the amount borrowed plus the finance charges or “fee” and receives cash in return. The borrower must pay the amount borrowed plus the fee on his or her next payday in one lump sum. Payday advocates highlight the fact that these loans help consumers who would otherwise have nowhere to turn because traditional financial institutions are reluctant to lend to risky borrowers.
Too often, however, that begins a vicious cycle of debt, as the borrower is forced to take out another loan to make ends meet until his or her next paycheck. The Center for Responsible Lending estimates that borrowers who take out 12 or more loans a year generate the majority of the industry’s business.
I have joined with state Rep. Frank Ferri, state Sen. Juan Pichardo, Mayor Taveras and the Rhode Island Payday Lending Reform Coalition in advocating against this practice.
We should curb the predatory practices of the payday lending industry, while ensuring fair access to capital and financial education needed to thrive.
One such safer alternative is the Capital Good Fund, a Providence-based nonprofit, which provides loans and financial coaching to low-income Rhode Islanders. Some credit unions are also beginning to launch safe payday alternatives.
Payday lending is relatively new in Rhode Island and we are the only New England state to allow it. Prior to 2001, existing law capped small dollar loans at a maximum rate of 3 percent a month — or 36 percent APR. However, legislative changes in 2001 and 2005 made Rhode Island fertile ground for the national payday lending chains. Today, a payday lender can charge up to $10 per every $100 borrowed over a two-week period, which equates to a 260 percent APR.
In 2006, with bi-partisan support, Congress banned lenders from issuing payday loans to members of the armed forces or their dependents. This action was taken in response to growing financial problems associated with the practice of payday lending around military bases.
It is time for Rhode Island to take action. The General Assembly should enact legislation that mandates a reduction in the allowable payday-lending interest rate, requires lenders to offer extended repayment plans, calls for greater disclosure of the real dangers associated with payday lending and emphasizes the need to create and publicize safer alternatives.
In protecting our citizens from predatory lending, we can take a step toward a more prosperous economic future.