| 1/11/2013 |
Ferri pushes again to eliminate high interest exemption for payday lenders
STATE HOUSE – With the bipartisan support of more than two-thirds of the House of Representatives, Rep. Frank G. Ferri has introduced legislation aimed at freeing Rhode Islanders from a cycle of debt caused by ultra-high-interest payday loans.
The legislation eliminates a special exemption from the state’s usury law that has allowed payday lenders to charge borrowers triple-digit interest rates. The legislation would not prohibit payday loans themselves; it would simply make them subject to the same interest limits as other loans.
“Payday lenders are getting special treatment that allows them to take advantage of families who are scraping by, paycheck to paycheck. They are hurting struggling Rhode Islanders, not helping them, by charging outrageously high interest. We shouldn’t believe that they’re providing some valuable public service that should allow them to be exempt from the law; what they’re doing is just plain usury. They should be subject to the same limits as other lenders,” said Representative Ferri (D-Dist. 22, Warwick).
His legislation (2013-H 5019) would strip the exemption for cash-advance lenders, making them subject to the same usury laws that govern other lenders, which limit annual interest rates to 36 percent. A similar federal law applying to active military members and their families was enacted in 2006 after the Department of Defense determined that payday lenders’ predatory practices were harming military members. That bill also capped interest rates at 36 percent. Seventeen states and Washington, D.C., have similar laws capping interest rates, many at 36 percent, according to the Center for Responsible Lending.
According to a recent report complied by Pew Charitable Trusts, 81 percent of people who use payday loans say they would cut back on personal expenses if payday loans were unavailable to them. The same report states that in states that restrict payday lenders from operating storefronts or have interest caps low enough to eliminate the industry, 95 out of 100 would-be payday loan borrowers do not borrow at all. Only five in 100 turn to online payday lenders or borrow from another source.
The Pew report also found that 69 percent of borrowers said they sought their first payday loan not to pay for an unexpected expense or emergency, but to cover ordinary living expenses.
“If someone living paycheck-to-paycheck takes out a payday loan to pay their living expenses one week, and they have to pay it all back with their next paycheck, they are left with no money to pay that week’s bills. The result is they’re at least one paycheck behind, taking out loan after high-interest loan just to pay their regular expenses. It’s becomes impossible for them to ever catch up,” said Representative Ferri. “The payday loan industry is preying upon target those who can least afford to pay their enormous interest rates, causing spiraling debt for families who are already struggling.”
According to the Pew report, the average borrower takes out eight loans over the course of the year, averaging $375 each, with a total of $520 in interest annually, and is in debt to payday loans five months out of the year. In Rhode Island, the payday lenders can charge interest equal to about 260 percent a year.
Representative Ferri said there are much better alternatives to payday loans that would remain available if payday lenders were to pull out of Rhode Island. There are local financial institutions that will provide small, short-term loans, including the nonprofit Capital Good Fund, which is aimed at breaking the cycle of poverty and provides financial coaching to borrowers to prevent them from being crippled by debt.
The House bill was introduced Jan. 8, and in addition to Representative Ferri, 51 other representatives signed it as co-sponsors. The first four are House Minority Leader Brian C. Newberry (R-Dist. 48, North Smithfield, Burrillville), Rep. Joseph S. Almeida (D-Dist. 12, Providence), Rep. Christopher R. Blazejewski (D-Dist. 2, Providence) and Rep. Teresa A. Tanzi (D-Dist. 34, South Kingstown, Narragansett.)
Sen. Juan M. Pichardo has sponsored similar legislation in the Senate for many years, and has indicated that will introduce the bill in the Senate again this year.
For more information, contact:
Meredyth R. Whitty, Publicist
State House Room 20
Providence, RI 02903
(401) 222-2457 |
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