Payday lending rates are sky high, but not optimism for R.I. Senate to pass reform this year

It’s a classic case of political power dynamics.

Community advocates, voters and lawmakers have spent years trying to bring payday loan reform to Rhode Island. And every year, it fails, with legislative leaders unwilling or uninterested in advancing the proposals to their respective chambers for a vote.

Until last year, when the Rhode Island House in a historic first passed payday lending reform in a sweeping 70-2 vote on the final day of the legislative session. Meanwhile, companion legislation was left to languish in committee on the Senate side.

In final days of legislative session, advocates push hard for payday loan reform

The reason, according to supporters: Senate President Dominick Ruggerio, whose open skepticism about the legislation is thought to be the primary obstacle to the bill’s success in the upper chamber.

Even with presumed support in the House again this year, advocates still think the Senate leader will stand in the way of attempts to crack down on payday lenders who can charge triple-digit interest rates on small-dollar loans. They include the bill’s Senate sponsor, Sen. Ana Quezada, a Providence Democrat.

“Do I think the bill is going to pass this year? No,” Quezada said in an interview on Tuesday. “I cannot promise anything because he [Ruggerio] did not promise me anything.

In an email on Monday, Greg Pare, a spokesperson for Ruggerio, said the president “looks forward to the public hearing on the legislation.”

Unlike last year, the Senate legislation will get a public vetting, with a hearing scheduled before the Senate Committee on Commerce Tuesday evening. Quezada took that as a good omen, especially because the hearing was slated for the evening of her 59th birthday.

“That would be a good present to let this bill pass,” Quezada said.

Margaux Morisseau, co-chair of the Rhode Island Coalition for Payday Reform, was less optimistic.

“I think the Senate president is giving us the hearing so he can say it had a hearing, but has no interest in having it be voted on,” Morisseau said in an interview Tuesday morning.

Morisseau is among a group of community organizers and advocates who have backed payday lending reform in each of the past 13 legislative sessions, spending hours speaking to lawmakers and holding press conferences to drum up support for what they frame as a socioeconomic justice issue.

Supporters of stricter regulation decry the predatory practice of deferred deposit providers, alleging they take advantage of consumers who turn to the small-dollar loans as a last resort for payments on rent and utilities. However, the sky-high interest rates — up to 260% annually — combined with a 13-day repayment deadline trap borrowers into a cycle of debt as they struggle to repay not only the original loan but the thousands of dollars in interest and fees that accrue.

“Allowing this unregulated practice to persist exacerbates poverty and undermines the financial security of low-income households, trapping our most vulnerable neighbors in devastating cycles of debt, and disproportionately harms communities of color,” Melina Lodge, executive director for the Housing Network of Rhode Island, wrote in a March 25 letter to lawmakers. 

“An industry which can only remain viable by relying on practices that prey on desperation, exacerbate poverty and harm our most vulnerable neighbors, is simply unsupportable.”

Companion bills introduced this year by Quezada and Rep. Karen Alzate, a Pawtucket Democrat, would end the loophole that allows payday lenders to charge triple-digit interest rates, instead capping loans at 36% interest. The same maximum applies to military members and their families nationwide under a 2006 law passed by Congress.

No payday lending regulation at all in two smallest states

Twenty other states already ban or cap interest rates for payday loans at 36%, according to a 2023 report by the Center for Responsible Lending. Rhode Island and Delaware are the only two Northeast states with no regulations around payday loans. Maine also allows triple-digit interest rates but has limits on fees and allows for longer repayment terms, according to the report.

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. 

Rhode Island Secretary of State Gregg Amore and General Treasurer James Diossa have also backed the regulations in separate letters to lawmakers. 

“Often, the Division encounters individuals who wish to start a business but have been victims of predatory lending practices, which have a long-lasting effect on their personal credit history,” Amore said. “Payday loans trap borrowers in a cycle of debt, creating challenges not only in repaying the loan but also in paying other critical expenses. Although payday lending specifically affects individuals’ finances, it can impact their ability to keep their businesses in good standing.”

Payday lending institutions have opposed the proposal, including Purpose Financial Inc., which does business in Rhode Island as Advance America. The national company has hired former House Speaker William J. Murphy as its lobbyist, paying the powerful former state lawmaker $30,000 a year to represent its interests on Smith Hill.

“He has the greatest influence in the State House,” Morisseau said of Murphy. “And he knows it.”

Murphy has continued to oppose the bill on behalf of his client, saying the interest rate cap would discourage “financial freedom of choice” among Rhode Island consumers. He disputed allegations that his influence as former House Speaker was the obstacle to passage.

“On the merits, the bill should not pass,” Murphy said.

He said discussion of the proposal has been clouded by misperceptions of payday lending, stressing that Advance America operates within state regulations and has been subject to no consumer complaints in recent years.

Alzate contended industry representatives are responsible for spreading misinformation, framing their small-dollar loans as a service for consumers in need.

“They make it seem like these people are unbankable, but that’s not true,” she said. “Everyone is bankable, it just looks different.”

Research by Pew Charitable Trusts suggests that in states where payday loans don’t exist, borrowers turn to friends, negotiate with debtors or cut expenses instead. Separately, the Center for Responsible Lending estimates that rate caps have saved residents in other New England states an estimated $252.7 million a year.

House Speaker K. Joseph Shekarchi called for compromise between the two sides in an emailed statement on Tuesday.

“The House passed payday lending reform last year and will continue to look closely at the issue again this session, with the hope that the advocates for the bill and the industry representatives can work toward a compromise,” Shekarchi said.  “We will review the testimony taken at the public hearing conducted by the Corporations Committee as the normal course of legislative business.”

The Senate Commerce Committee will meet at the rise Tuesday, around 5 p.m. at the State House. The meeting will also be streamed on Capitol TV.

If approved, the reform law would take effect Jan. 1.

Updated to include comment from House Speaker K. Joseph Shekarchi and to correct Margaux Morisseau’s position.