At a recent event at Tolman High School in Pawtucket, Democratic educators and politicians celebrated a new law requiring Rhode Island students to take financial literacy training.
Rhode Island General Treasurer Seth Magaziner said the research is clear: Students become more tax-savvy adults when they learn the basics of finance.
“When students have access to training on how to budget, save, invest, on average, these kids have higher credit scores, lower debt and a lower likelihood of taking out a loan. salary. and all kinds of other better financial results, ”he said. “So it works. “
Even with this financial literacy campaign, Rhode Island is the only state in New England that allows consumers to risk falling into what the Center for Responsible Lending calls “the payday loan debt trap.” In other words, while the interest rate is capped at 21% for most commercial lenders, payday lenders can charge the equivalent of an annual percentage rate of 260%.
Maine allows the equivalent of 217% APR, according to the center, while strong protections limit payday loans in other New England and Northeast states.
In Rhode Island, payday lenders charge $ 10 in interest for every $ 100 borrowed, up to $ 450 in one loan, for a two-week period.
Andy Posner, Founder and CEO of Capital goods fund, a Providence-based nonprofit lending agency, said that is why payday loans may seem reasonable.
A person who takes out a loan of $ 300, for example, is supposed to pay back $ 330 in two weeks. But Posner said most payday clients can’t meet that deadline. Instead, according to the Consumer Financial Protection Bureau, they repeatedly renew the loan, accumulating more debt.
“And that’s how a $ 300 loan ends up costing you $ 700 in interest and fees,” Posner said. “In other words, the fundamental problem here is that a payday lender only makes money when you’re trapped in debt. If you successfully use the product as it was designed, they will lose money.
Rhode Island advocates have been fighting since 2011 to cap these interest rates.
And when the student financial literacy bill was introduced to the House in April, that chamber’s sponsor, Rep.Joseph McNamara (D-Warwick), chairman of the RI Democratic Party, indicated that lenders on wages were part of the reason the legislation was needed. “Just in my neighborhood,” he said, “if you walk in from Cranston, down Warwick Avenue, before you’ve walked a mile and a half, you’ll see two payday loan franchises, national companies of payday loan, which charge horrendous fees. rates and benefit from our fellow citizens.
But unlike other states, Ocean State legislative leaders show little interest in cracking down on the payday lending industry.
State Senate Speaker Dominick Ruggerio was among those elected at the financial literacy event earlier this month at Tolman High School in Pawtucket, a town where payday loan giant Advance America has three stores. Ruggerio said a bill to cap payday loan interest at 36% was not a priority in the closing weeks of the legislative session.
“I didn’t even watch it,” Ruggerio said. “I didn’t know there was an invoice.”
“It has been in the legislature for 10 years,” said one reporter.
“I don’t know at the moment,” Ruggerio replied. “It doesn’t sound like something we’re going to do in this legislative session.”
House Speaker Joe Shekarchi is more cautious. In a recent interview, he did not pledge whether he would let the payday loan bill be votable in the House, even though he said he supported it. the idea that pay is a predatory practice.
“I hear that argument,” Shekarchi said. “I tend to agree with this argument. It is not something that I do or recommend. But there are other people in Rhode Island who have a different view that this is a private business and that people should have this service available to them.
Governor Dan McKee does not appear to have publicly expressed his concerns about payday loans in Rhode Island.
Asked for comment, McKee spokeswoman Alana O’Hare said the governor and his team would review legislation to cap payday lending “as it moves through the General Assembly.” The governor supports efforts to protect consumers from harmful debt cycles and to protect Rhode Islanders and their personal finances. “
The apparent status quo on payday loans comes as lawmakers approved legislation to promote financial literacy among students, along with a bill requiring financial institutions to report to the National Office on Healthy Aging. health concerns the financial abuse of the elderly and temporarily suspend these transactions.
Rhode Island lawmakers legalized payday loans 20 years ago.
Julie Townsend, senior policy advisor at the parent company of Advancing America, the country’s largest payday lender – with 18 branches across the state – said consumers understand their finances.
She said consumers typically use payday loans to cover a gap when they are running out of money.
“Our customers understand their finances,” Townsend said, “and they use this product because it’s the cheapest credit available to them. It’s cheaper than the other options they face, like overdraft fees, bounced check fees, and late fees.
Some payday clients describe the situation differently.
Vannessa Ramirez, now 29, took out a payday loan when she moved into a new apartment in Providence two years ago and couldn’t afford to turn on utilities. She said that payday loans are marketed as a quick and easy way to solve financial difficulties.
“What ends up happening is most people don’t understand the impact of interest and fees on you,” Ramirez said. “In a moment of desperation, you think, okay, I have to do this. In my situation, I couldn’t be in a house with no electricity and no gas, so I did this to solve this problem, but I wouldn’t have enough money to pay my rent or buy food, so it made it a lot more difficult. “
Ramirez used the salary even though she worked for the Capital Good Fund, although she says she was unaware of the risks.
The association started in a social entrepreneurship course at Brown University in 2008, and describes its mission as helping people lift themselves out of poverty. Ramirez says she ultimately paid off her payday loan by refinancing it with a considerably lower interest rate through the Capital Good Fund.
Andy Posner, of the Capital Good Fund, said it was difficult to market lower-cost lending programs like CGF and credit unions because the payday lending industry has a lot more money to spend on The advertisement. “There is a bit of a level playing field,” he said.
Yet the industry faces certain challenges.
The advent of online loans has reduced the activities of payday lenders who use physical stores. In Rhode Island, there was just under $ 50 million in loans last year, up from a peak of nearly $ 100 million in 2014. That does not include interest and fees.
Online loan is legal in Rhode Island as long as the lender is licensed. The state does not distinguish between online and physical payday lenders. It also combines the approvals granted to these lenders with the check-cashing points.
Supporters and salary critics say federal stimulus payments over the past year have reduced demand for payday loans. Despite this, the industry is still considered very profitable when lenders can charge rates like those in Rhode Island.
If advocates here want to see how a state can change course, they can look to Illinois and Hawaii, which this year created laws to put a 36% interest cap on payday lenders. Almost 20 states use a similar limit.
Brent Adams of the Chicago-based Woodstock Institute said it took Illinois 20 years to get there, and the increased focus on racial justice after George Floyd’s death had kicked in thumb.
Adams said the long fight reflects a gap between how voters and elected officials view the breakdown industry.
“When consumers from all political parties are asked whether they support price caps, such as a 36% tariff cap, by a large bipartisan majority, they say ‘yes’. “He said.” But that is not reflected in the state capitals and the national capital, because the industry is very powerful. They have a lot of connections, they have a lot of lobbyists, they have a lot of resources.
In Rhode Island, Advance America pays a former Speaker of the House, William Murphy, $ 30,000 a year to represent its interests. He’s one of the state’s most prominent lobbyists, although Advance America’s Julie Townsend says Murphy is no more influential than a typical lobbyist.
On the other side, state treasurer Seth Magaziner and a small number of lawmakers and liberal activists continue to push for changes in payday lending. They appear every year and testify at legislative hearings. Posner paid for a full page ad in The Providence Journal last week – with the headline in large print: “RI Legislature: Okay with 260% APR?” – in a last ditch effort to motivate lawmakers during what is expected to be the last week of the General Assembly session.
But legislative leaders do not seem likely to bring the bill to cap payroll interest rates to the prosecution of their respective chambers. And advocates haven’t staged the kind of broad grassroots campaign that pushed reluctant lawmakers to legalize same-sex marriage in 2013 and a state-based abortion right in 2019.
This is an expanded version of a story aired on public radio.