Capping 260% interest payday loans is good for R.I.

Guest Column: Don Anderson and Kathleen S. Connell
To paraphrase Mark Twain, “A lender is a fellow who charges you for his umbrella when the sun is shining, but wants it back the minute it begins to rain.” If that’s the case, a Rhode Island payday lender is the fellow that lends you a paper umbrella for the mere cost of 260 percent annual interest when it starts raining and then wants it back minutes later in the middle of the rain to sell you another one. More

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OP-ED

Capping 260% interest payday loans is good for R.I.

Guest Column: Don Anderson and Kathleen S. Connell
Posted 5/21/12

To paraphrase Mark Twain, “A lender is a fellow who charges you for his umbrella when the sun is shining, but wants it back the minute it begins to rain.” If that’s the case, a Rhode Island payday lender is the fellow that lends you a paper umbrella for the mere cost of 260 percent annual interest when it starts raining and then wants it back minutes later in the middle of the rain to sell you another one.

Since 2001, high-cost payday lending “umbrellas” have become too common in Rhode Island’s financial landscape. Storefronts promoting “Quick Cash” crowd the streets in many of our neighborhoods.

The typical payday loan is marketed as a short-term fix to a financial emergency and is secured by a borrower’s post-dated personal check. The loan comes due, all at once, along with interest, on the borrower’s next payday.

Triple-digit interest rates transform an admittedly dubious decision to take out a payday loan for the first time into no choice at all. Instead of financial relief, most families find a costly financial downpour and debt trap in the long-term. Unable to repay the entire loan plus interest in just two weeks, on top of normal monthly expenses, many must take out a new loan.

On average, borrowers are indebted for 212 days of the year and data shows that 76 percent of payday-loan revenue is due to borrowers stuck in this debt trap.

But the financial storm for families does not end there. Research has shown that using payday loans means borrowers are more likely to have credit card delinquency, unpaid medical bills, overdraft fees leading to closed bank accounts, and even bankruptcy.

Local charities across the country report an increased need from borrowers stuck with this form of high-cost debt. In one survey, for example, charities reported that nearly 20 percent of their cash assistance goes to families stuck in a debt trap.

Payday loans became common in the 1990s and 2000s as payday lenders sought special deals from state legislatures to make otherwise illegal loans available. In 2001, Rhode Island first legalized payday loans. Ironically, this was the same year North Carolina recapped payday loans at a 36 percent interest rate after a failed experiment with these types of loans.

Since 2005, no state has authorized this dangerous product, yet Rhode Island loosened state law to allow national payday chains into the state.

Our seniors and working families living paycheck to paycheck deserve the same protections, not the “umbrellas” and debt traps offered by payday lenders. Rhode Island’s economy needs access to fair credit at reasonable rates, not payday loans at 260 percent annual interest. •


Don Anderson is the executive minister of the Rhode Island State Council of Churches; Kathleen S. Connell is the state director of AARP Rhode Island.

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