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House panel considers proposals to reform payday loans

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House panel considers proposals to reform payday loans

Mar 24, 2023 | 2:00 am ET
By Nancy Lavin
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House panel considers proposals to reform payday loans
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Most payday loans have a 13-day loan repayment deadline, in contrast to the typical biweekly paycheck, forcing borrowers to take on more debt while racking up high interest rate charges and other fees. (Photo by Nancy Lavin/Rhode Island Current)

The perennial pressure to crack down on payday lenders in Rhode Island is mounting.

The House Corporations Committee heard testimony Tuesday on two proposals that would more strictly regulate, or ban outright, payday loans in the Ocean State, where lenders can charge up to 260% interest. 

Policy experts and activists denounced these “predatory lenders” for perpetuating a cycle of poverty that also disproportionately affects people of color. Most payday loans have a 13-day loan repayment deadline, which doesn’t coincide with the typical biweekly paycheck, forcing borrowers to take on more debt while racking up exorbitant interest rate charges and other fees.

“This ends up being like a merry-go-round,” said Democratic Rep. Karen Alzate of Pawtucket. 

Alzate has proposed a bill that would ban payday lenders in Rhode Island altogether. Meanwhile, Rep. John Lombardi, a Providence Democrat, has a separate proposal that allows payday lenders to continue to operate, but with stricter regulations: a 28% interest rate cap, a 90-day maturity date and fees limited to 60% of principal interest.

Lawmakers, policy leaders and consumer advocacy groups have pushed back against “predatory lenders” for years, but past legislation has failed to advance out of committee.

This ends up being like a merry-go-round.

– Rep. Karen Alzate of Pawtucket

Lombardi, who introduced the same proposal in years past without much backing, credited Alzate for drumming up support among lawmakers this year. 

Rhode Island voters want reform, too. Six in 10 people surveyed expressed support for lowering interest rates on payday loans to 36%, according to a  2022 poll by The Center for Responsible Lending, the Economic Progress Institute and Capital Good Fund. Some of those who expressed opposition did so because they thought the interest rates should be even lower, according to Alan Krinsky, director of research and fiscal policy for the Economic Progress Institute.

Krinsky attempted to head off arguments by the companies that offer these loans, who insist they are offering an important financing tool to those who need it most.

“They would like you to believe they’re providing service to people in need but the reality is otherwise,” Krinsky said. “What they’re providing is access to debt.”

At least 18 other states ban or cap interest rates for payday loans at 36%, according to research by Pew Charitable Trusts. Rhode Island and Delaware are the only two Northeast states with no regulations around payday loans.

The Corporations Committee has not scheduled a vote on either bill as of Wednesday. Companion legislation to Alzate’s proposal introduced in the Senate by Sen. Ana Quezada, a Providence Democrat, has not been scheduled for a committee hearing.