It has not been a lucky year for Georgina Paulino. The Westerly resident’s partner was injured and is out of work. The care of her mother, a dialysis patient, has fallen solely on her.
Her income as a full-time employee at a traumatic brain injury facility doesn’t always cover her monthly expenses. Paulino moved from a one-bedroom apartment to a two-bedroom to better care for her mother, raising her monthly rent from $950 to $1,400. On top of that, inflation has ticked up her other expenses, such as gas and electricity.
Two months ago, she found herself in a pinch, so she took out a payday loan.
After she looked closely at the contract with a company she wanted to keep anonymous for fear of retribution, she immediately regretted it. Her initial loan was for $1,800. She will have to pay back $3,000.
It has been over a decade of fighting by advocates to pass legislation to stop predatory lending such as this in Rhode Island.
Advocates such as Margaux Morisseau, co-chair of the Rhode Island Coalition for Payday Reform, have tried to reverse a special carve-out in the law allowing payday lenders to bypass loan regulations. The measure would have basically ended payday lending, which involves a relatively small amount of money at a high interest rate that is supposed to be repaid by the borrower’s next paycheck.
For the first time, the bill passed the House in the last legislative session. However, it stalled when it arrived too late in the Senate.
Morisseau says that stopping the legislation in its tracks are lobbyists such as the former speaker of the House, William J. Murphy, a lobbyist for Purpose Financial Inc., the parent company of Advance America. Purpose Financial has paid his firm $30,000 this year, according to state records.
South Carolina-based Advance America has nine stores in Rhode Island, providing same-day, short-term loans up to $450, with a minimum term of 13 days.
If the legislation passes, the company will close in the state, Julie Townsend, the senior policy counsel for Purpose Financial, wrote in an email to PBN.
Townsend testified before a House committee on March 21 that customers may take a few weeks to a few months to pay off their loan, but not a year or years. Banks, credit unions and nonprofits offer similar products but often have a waiting period or other strings attached before getting their loan, Townsend said.
“Our customers are not usually in a position to wait or jump through a lot of hoops,” Townsend said. “They need to pay bills today.”
In the U.S., 20 states and the District of Columbia have restrictive laws prohibiting payday loans, capping the annual percentage rate at 36%, according to the Center for Responsible Lending.
It’s different in states such as Rhode Island, where Pew Research Center reports that the average cost to borrow from a payday lender is $360 at an average APR of 261%. Last year, payday lenders charged more than $3 million in fees from Rhode Island borrowers, according to the Center for Responsible Lending.
Rep. Karen Alzate, D-Pawtucket, the sponsor of the bill that passed the House, has heard often from people in the community about them falling behind on payments on short-term, high-interest loans.
Alzate took up the initiative last year, saying there is a lack of education on payday lending practices, and that is keeping people in poverty.
She pointed to the Military Lending Act of 2006, which prevents active-duty service members and their families from being charged any more than 36% interest on consumer loans.
“That, to me, speaks volumes,” Alzate said.
Consumer Financial Protection Bureau research concluded that payday lenders succeed by ensuring their customers fail. Lenders collect 75% of their fees from borrowers with 10 or more loans per year.
“We’ve found that these loans have unaffordable payments, unrealistic terms and excessive prices,” said Gabriel Kravitz, a Pew Research Center housing policy initiative manager.
In Rhode Island, a person can legally borrow up to $500 in a single loan, he says. But 10% of that is the fee charged, so the borrower only gets $450. When the borrower needs to pay back the $500 in two weeks, it takes up about a third of a typical customer’s paycheck.
In addition, payday lenders can access the borrower’s checking account through a post-dated check. The borrower must pay the company before covering other expenses.
Pew found that a typical payday borrower typically makes about $30,000 a year and uses the loans to cover recurring expenses such as rent, mortgage and utilities. Most borrowers are white, but there’s a disproportionate use of payday loans among Black borrowers.
“On the surface, these payday loans are presented by the ones who are benefiting from them as helping people,” said Alan Krinsky, director of research and fiscal policy of the Economic Progress Institute. “But ... they’re giving people access, not to credit that they need but to debt.”
Morisseau says the state has seen the number of payday lending locations drop in recent years from about 40 to 18.
In Paulino’s case, she turned to the Providence-based nonprofit microlender Capital Good Fund, which provided her with a new loan paid monthly at an APR of 12%. She continues to pay off both loans. Paulino would like to see payday lenders disappear to prevent others from following her path.
“I’m living proof,” Paulino said. “I want other people out there to know too that they’re not alone.”
