Five Questions With: Margaux Morisseau

The staff at NeighborWorks Blackstone River Valley say they started noticing a trend a while ago: Some people who approached the community nonprofit had high-interest loans from payday lenders, and they were struggling to pay it back.
NeighborWorks has joined other community groups and a few state legislators in an attempt to cap the interest rates that payday lenders are allowed to charge. Rep. Frank Ferri, D-Warwick, and Sen. Harold M. Metts, D-Providence, have submitted bills that would limit the interest rates for payday loans to 36 percent annual percentage rate.
Margaux Morisseau, the director of community building at NeighborWorks, has helped organize support for the legislation. She answered five questions about it.

PBN: How much usage do payday lenders get in Rhode Island? Do we know borrowers are relying more on payday lenders than in the past?
MORISSEAU: Payday lenders annually drain $3.1 million in fees from Rhode Island families, mostly to out-of-state payday chains… The core of industry revenue comes from keeping borrowers trapped in their faulty product payday after payday, so storefront and loan-volume numbers represent trapped customers, not demand for 260 percent annual-percentage-rate loans.

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PBN: You mention that payday lenders receive a “special deal” allowing them to charge up to a 260 percent annual interest rate. Is that unusual or typical among laws governing payday lenders in other states?
MORISSEAU: Historically, most states, including Rhode Island, set their small-loan rate caps at 36 percent or less. Payday lenders specifically asked for the Rhode Island legislature for an exemption, allowing them to charge higher rates than any other lender in the state. The rationale was that these were short-term bridge loans so maybe the annual percentage rate wasn’t a fair measure. That rationale has proven false – payday loans lead Rhode Islanders into long-term debt and that 260 percent rate is painfully accurate. The pain stems not only from the high fees paid, but the reality that payday loans are more likely to cause bankruptcy, default on rent and utility bills and involuntary bank account closures. Payday lenders’ special deal should be revoked and level playing field restored.
In the states where rates are capped at or about 36 percent, their citizens collectively save more than $2 billion annually. And in 2006, Congress enacted a 36 percent rate cap for soldiers and their families because payday loans triple-digit rates were considered a threat to national security. All Rhode Islanders should be protected from such high-cost products.

PBN: What groups have been part of the effort to lower the allowed interest rate for payday lenders?
MORISSEAU: The statewide support for a 36 percent cap is quite impressive, including groups such as Univocal Legislative Minority Advisory Coalition, AARP, the City of Providence, Housing Network of Rhode Island, Jewish Federation of Greater Rhode Island, and more than 20 other organizations such as neighborhood associations, faith-groups, and service providers. They recognize that a 36 percent cap costs Rhode Island taxpayers nothing while freeing up at least $3 million lost in high-cost interest annually to go toward productive businesses that provide needed goods and services. This is critical not only for the budgets of Rhode Island’s families but also for broader economic recovery.

PBN: Instead of going at this legislatively, have members of your group attempted educating prospective borrowers about the costs? How successful have those efforts been?
MORISSEAU: While financial literacy efforts are ongoing throughout the state, stakeholders are calling for a 36 percent cap because financial literacy does not change the fact that a payday loan is a defective product. When cars explode because of a defective engine, the solution is not driver education, but rather to a call to fix the defect. For payday loans, a 36 percent rate cap is the only way to fix the debt trap.

PBN: You also mentioned a new report, Payday Loans Inc.: Short on Credit, Long on Debt, from the Center for Responsible Lending. What were the highlight findings of the report?
MORISSEAU: The report revealed that the debt on an average payday loan is not the two weeks that lenders advertise. In the first year of payday borrowing, average indebtedness lasts more than 200 days. For those borrowers taking additional loans into the second year, the debt burden increased to an average of 372 days over two years! Perhaps even worse, nearly half of all payday borrowers defaulted once trapped, by which point they would have paid hundreds of dollars in fees that exceeded the amount of payday debt owed. Again, if a car exploded nearly 50 percent of the time, we’d demand a recall of that defective product.