PROVIDENCE, R.I.—Lawmakers and consumer groups want Rhode Island to restrict payday loans but lenders say their proposal would leave consumers with fewer ways to make ends meet.
A bill reviewed by lawmakers Tuesday would prohibit payday lenders from charging interest rates above 36 percent, the cap placed on other types of financial institutions. A special exemption in current law allows payday lenders to charge interest as high as 260 percent on short-term loans.
Payday lenders give consumers cash loans of a few hundred dollars until their next paycheck, typically two weeks later. Supporters of the proposed rate limit say payday lenders exploit low-income consumers who often take out a second loan to pay off the first.
"Financial rape is what it is, but we allow it to happen," said Rep. Lisa Baldelli-Hunt, D-Woonsocket. "Why do they (lenders) need 36 percent? Because it's predatory."
Loan company representatives say the proposed restrictions would drive them out of Rhode Island altogether.
Jamie Fulmer, vice president of Advance America, said the cap would likely force his company to close its 20 Rhode Island branches. Advance American now charges $10 for a $100 two-week loan in Rhode Island. Under the proposed cap, the company could only charge $1.38 in interest for every $100 loan.
"This is not a reform bill; it's designed to eliminate our industry outright," he said.
The loans can be a better alternative than pawn shops, title loans or bouncing a check, said Steven Schlein, spokesman for the
"Consumers know what they're doing," he said. "You walk in and you see our rates in big letters on a poster. We're the most transparent financial service there is."
More than a dozen states currently limit payday loan interest rates. The federal government restricts interest rates on payday loans to military service members.
The Rhode Island bill has the backing of several consumer advocacy groups.
"I've never had a client who has benefited from a payday loan," said John Longo, a Providence attorney and a member of the National Association of Consumer Advocates.
Not all lawmakers support such a low cap on interest rates. Rep. Joseph Trillo, R-Warwick, said lawmakers should consider a higher cap. He said a 36 percent cap could force legitimate payday lenders to close and leave consumers at the mercy of loan sharks.
"You could always borrow money from somebody on the street," he said. "And if you don't pay they'd break your legs."
The bill awaits a vote in the House Corporations Committee.
