Rhode Island payday loan bill seeks strict interest rate cap

Shot of the Rhode Island capitol building, taken from a distance, down a tree-lined walkway.

Rhode Island legislators will soon debate the merits – or lack thereof – of 2011 H 5562, yet another payday loan rate cap bill. (Photo Credit: CC BY-ND/Patrick Haney/Flickr)

Just as He-Man had his infamous “By the power of Grayskull!” battle cry,  opponents of payday loans continue to cry for cartoon-like 36 percent APR interest – cartoonish because 36 percent has been proven numerous times to be well outside the bounds of practicable business reality. Yet legislators in Rhode Island, led by sponsor Rep. Frank Ferri, D-Warwick, are pursuing yet another bill that would attempt to cap payday loans at the same 36 percent APR. Lenders argue that this will drive them out of the state and drive consumers in need toward unscrupulous loan sharks.

2011 H 5562 would eliminate payday lending in Rhode Island

Volumes of published and unpublished independent research have shown that when companies that offer payday loans with a simple credit check are driven from a community, the overall financial condition of consumers degrades. Payday lenders don’t need that kind of blow to the bottom line, let alone the state of Rhode Island.

Advance America Vice President Jamie Fulmer told the Associated Press that a 36 percent cap would force Advance America to pull its 20 branches from Rhode Island. As it stands currently, the branches charge $10 for $100 payday loans. If Rep. Ferri’s 2011 H 5562 manages to become law, payday loan businesses could only charge $1.38 per $100 loaned.

“This is not a reform bill; it’s designed to eliminate our industry outright,” said Fulmer.

Anti-payday loans bill offers a single exemption

According to The Providence Journal, 2011 H 5562 offers but a single exemption to the 36 percent APR cap. Organizations that offer payday loans with a basic credit check can charge as much as 260 percent APR on short term loans. Because such loans come to maturity long before a year is up, the concept of an annual percentage rate on payday loans is not a useful yardstick, however.

Politician cries ‘financial rape,’ business trusts consumers

In a bout of cartoonish exposition, Rep. Lisa Baldelli-Hunt, D-Woonsocket, told local media that payday loans are “financial rape” and that a 36 percent APR is “predatory.” However, as Community Financial Services Association of America spokesman Steven Schlein told The Providence Journal,

“Consumers know what they’re doing. You walk in and you see our rates in big letters on a poster. We’re the most transparent financial service there is.”


Associated Press

The Providence Journal

Rhode Island General Assembly