Fed up with their inability to get laws changed on the state level, advocates seeking to rein in so-called “payday lenders” operating in Rhode Island are taking the fight locally.
Margaux Morisseau, co-chair of the Payday Lending Reform Coalition, has found some success in persuading municipal officials to enact ordinances that she says more stringently regulate 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.
Woonsocket, Cranston and most recently Providence have passed measures that cap interest rates at 33% and allow borrowers 60 days to repay their loans. Those ordinances were based on legislation crafted in Moorhead, Minn., which has led it to be dubbed nationally as the “Moorhead model.”
“We started floating this model to cities and towns who were frustrated that the state hasn’t done anything about this,” said Morisseau, who has been thwarted for years in her efforts to get the General Assembly to pass legislation. “They are saying, ‘We are tired of being taken advantage of and we don’t want predatory lending in our city.’ ”
Citing data from the Center for Responsible Lending, Morisseau says Rhode Island remains the only state in New England allowing up to 261% interest on short-term loans. Ocean State customers face fees of more than $7.6 million annually, and 93% of all payday lending in New England happens in Rhode Island.
This can lead to “cyclical borrowing,” AARP says, noting that according to data from the Pew Charitable Trusts, the average payday loan borrower in Rhode Island takes out 10 loans per year, often taking out new loans to pay back the old.
And some say there is a wider economic impact. A 2011 study by the Insight Center for Community Economic Development found that payday lending that year cost $774 million to the national economy and $1.6 million in Rhode Island.
Local solicitors in all three Rhode Island cities looked at the template legislation and decided how far they wished to go, Morisseau says.
In Cranston, short-term lenders will need to secure a license to issue short-term loans, and the city will limit lenders to making no more than two loans per customer per calendar year. The maximum fee charge is 10% of the original loan and the maximum annual percentage rate will be 36%, versus the 261% previously allowed.
Providence went a step further than the Moorhead model, passing an ordinance in May requiring payday lenders to register with the city and pay a $250 fee. They will also be required to provide financial data upon request by the Providence authorities, according to the ordinance.
If found to be in violation of the ordinance, a license can be immediately revoked.
Ordinance sponsor and City Council President Pro Tempore Juan Pichardo says the move was meant to increase accountability until state legislation is passed, if ever. The former state senator says payday lenders continue to prey on the most vulnerable, many in the ward that he represents.
“I saw it from the perspective of hurting working families. Especially the communities I represent who are economically challenged and people of color,” he said. “We are taking it upon ourselves to promote this at the local level. The organizations will continue the fight to ensure we get [state] legislation passed and the practice eliminated.”
Asked if there were any concerns that the provision allowing police inspection may run afoul of state or federal law, Pichardo has been assured it is legal, comparing the provision to law enforcement’s ability to seek records from pawn shops.
“This is an authority already delegated to the police,” he said.
In response to questions, Julie Townsend, vice president of government affairs for Purpose Financial, the parent company of Advance America, said the company is “currently reviewing the new ordinances to evaluate compliance with state law.
“Rhode Island short-term lending laws provide robust consumer protections while balancing access to credit for consumers,” she said. “Purpose Financial, through its state-licensed and regulated Advance America branches, is proud to provide safe, reliable credit to Rhode Islanders when they need it most.”
Today, there are 10 payday lender stores operating in Rhode Island, nine operated by Advance America. In 2022, the other major payday lender, Check ’n Go, closed its seven Rhode Island locations.
Those remaining are spread among seven Rhode Island communities: three in Warwick; two in Pawtucket; and one apiece in Woonsocket, Providence, East Providence, Warren and Cranston, according to the Rhode Island Coalition for Payday Reform.
However, according to Morisseau, the Woonsocket location refused to comply with the new municipal ordinance and has been in violation as of April 1.
Morisseau’s group is now seeking its next municipality to target. She feels the movement has sympathy among the general public. A 2022 poll conducted by the Center for Responsible Lending showed that Rhode Islanders supported a 36% rate cap on all loans by almost a 50-point margin.
“We are going to continue to work with other cities [such as] East Providence and Pawtucket to figure out the rest,” she said.
Pichardo argues that payday lenders should look at Providence’s ordinance as motivation to consider amending their business model.
“The industry argues they are for the working people [such as] teachers and nurses. We only want to make sure there is more accountability,” he said. “Now they have to take steps to make sure they are adhering to our ordinance. And at a certain point, they are going to have to make a decision if this is a business they want to continue to operate in our cities. If they decide they do not want that accountability, then that will be their choice.”
