The reality is that [a payday loan] targets people at their most vulnerable. It’s reckless lending. This product at its core is evil.
So said the Reverend Don Anderson, who co-chairs the Rhode Island Coalition for Payday Lending Reform along with Margeaux Morrison, director at NeighborWorks Blackstone River Valley. Anderson said this at the end of an information filled press conference held yesterday at the Center for Women and Enterprise that featured General Treasurer and putative candidate for governor Gina Raimondo.
All the speakers at the conference made no secret of the fact that in their view payday loans, with current interest rates as high as 260% or more, are harming our state by targeting the poorest members of our community.
Gina Raimondo, to her credit, has taken a very strong, proactive stand against payday loans, saying, “Rhode Island is trying to grow, there is no place for predatory lending, period. Full stop.” Raimondo went on to compare payday lending to the bank practices that triggered the 2009 financial collapse, and said that if the payday lending companies in Rhode Island determine that they cannot sustain their business at a 36% interest rate then, “Fine. Let them go. We don’t need them in Rhode Island.”
Treasurer Raimondo reached out to Navigant Credit Union to try and develop some alternatives to the usurious payday loans and Fred Reinhardt, chief lending officer of Navigant, was on hand to explain what they developed in response. The timing of the treasurer’s request was good, said Reinhardt, because Navigant was starting to see the electronic debits that payday lenders were hitting customer checking accounts with and even saw some of their own employees becoming victims to predatory loans.
In response, Navigant has developed a $200-$600 loan product that can be paid off over thirteen weeks and requires no credit checks. Unlike payday loan companies, Navigant reports the loans to credit bureaus, something payday loaners do only when the customer is in default, preventing customers from establishing better credit.
Reinhardt finds that a lot of the customers coming in for the new program are doing so in an effort to pay off and get out of the payday loan debts they already have. This new loan program is not a money maker for Navigant, but it’s not being run at a loss either. Reinhardt sees this as a way of serving a need in the community.
Jacky Beshar, Vice President of Groov-Pin, a manufacturer in Smithfield that makes pins and such, knows that many of her employees are only “two paychecks away from trouble. It happens and awful lot.” She sees financial education as a partial solution to the issue, pointing out that financial hardship is as likely to sink a family’s fortunes as a serious health issue. Her company worked with the Capital Good Fund to provide free financial education to those of her employees who want it, and works to help her employees avoid the need for payday loans.
Christopher Lefebvre, a consumer bankruptcy attorney, finds that many people are financially illiterate, whether they are white collar doctors or blue collar workers and many become overwhelmed by debt and seek bankruptcy relief. Payday loans are the “final domino” that brings these people into bankruptcy.
Having dealt with many people Lefebvre is very aware of the collection practices of payday lenders, which he describes as “ruthless.” He has yet to see a client who has had a positive experience with payday loans.
As Don Anderson pointed out at the conclusion of the presentation, the effort to reform payday loans is different this year because “we now have third party data that shows the claims of payday loan companies are a bunch of baloney.” Statistical evidence gathered by Tara Roche, a consumer finance researcher for the Pew Charitable Trust was presented at the conference.
Roche presented data from two recent Pew polls, one conducted in July 2012 and the other in February of this year. Though payday lenders claim that their customers use payday loans for short term emergencies, Pew’s research indicates that 70% of these loans are taken to cover recurring expenses like rent, bills and food. Using payday loans in this way does nothing to get at the customer’s underlying economic difficulties, and payday loans too commonly become traps that burden customers with additional and unnecessary debt.
Other things Pew revealed that payday loan companies are loathe to admit are that, on average, borrowers remain indebted for five months and seldom pay off the loan inside of two weeks. Further, two thirds of borrowers want changes in payday loan legislation. They realize they are getting a terrible deal.
Despite this mountain of evidence, word is that Speaker of the House Gordon Fox is still somehow undecided on whether or not to support H5019, Frank Ferri’s bill to reform payday loans. Fox, who is my representative, replied to an email I sent saying simply that he will keep my thoughts in mind as he reviews the testimony given at a recent hearing. One wonders what he’s waiting to hear.
When I called his office on Tuesday the woman answering the phone told me he was getting a lot of calls on the issue. I found out today that his office received over a hundred calls yesterday.
Will Fox budge on this issue? Payday loans target our poorest communities, and the Hispanic community and people of color are more often victims of this deceptive, dangerous and let’s face it, evil practice. Representative Fox needs to find it within himself to stand up for these communities.