It’s simply not true that payday loans are the only option to low wage borrowers as House Speaker Gordon Fox suggested to RIPR this morning.
“I don’t like predatory lending practices,” Fox told RIPR, “but I also understand for folks that have nowhere else to go, it might be a valid tool for them to go to and not be driven to more onerous kinds of lending, including Internet lending, at higher interest rates, if you could imagine such a thing, or backroom lending, which is even worse.”
In fact, there are three alternatives in the local lending market: the Capital Good Fund and the West Elmwood Housing Development Corporation, both in Providence, as well as Navigant Credit Union, which has 13 locations in the state including branches in Central Falls, Pawtucket and Woonsocket.
Additionally, according to a Pew Center report on payday loans from July, “In states that enact strong legal protections … borrowers are not driven to seek payday loans online or from other sources.”
Reform advocates testified about alternatives last session at the State House and RI Future reported on them then. Additionally, Margaux Morisseau, of the Coalition for Payday Lending Reform, said her group has presented the data to Fox.
“We’ve given him the information,” she said. “We need him to read the information.”
Gina Raimondo, a proponent of payday lending reform, mentioned these alternatives in a Providence Journal op/ed in May.
Fred Reinhardt, chief lending officer at Navigant Credit Union, said they offer a “short term, small dollar” loan that allows credit union members to borrow between $200 and $600 for up to 90 days at 18 APR. Payday loans can carry interest as high as 260 percent annually.
“We designed this product primarily specifically so people can refinance existing payday loans,” Reinhardt said.
He said they just started offering the loan in April and since then “most of them have been repaid on time,” he said.
Borrowers must be credit union members for 30 days before taking advantage of the loan, he said, but he noted that branch managers have told him that several people have opened accounts in order to apply for the loan.
The Capital Good Fund loan does not require a waiting period and loans up to $2,000 and 20 APR, according to Andy Posner of CGF. The average interest in a $325 loan from CGF is $87.80 compared with $468 from a payday lender.
The West Elmwood Housing Development Corporation loans up to $1,500 at 18 to 25 APR, Morisseau said.
According to the Pew report, “Most borrowers use payday loans to cover ordinary living expenses over the course of months, not unexpected emergencies over the course of weeks.”
Rhode Island is the only New England state that still allows predatory payday lending. Currently they are exempt from usury laws and charge interest up to 260 percent a year. Reform legislation last session introduced by Rep. Frank Ferri and Sen. Juan Picahrdo would cap them at 36 percent.