Roger Paquette works at a bowling alley in Johnston and when needed some quick cash and he didn’t know where to turn. So he took out what’s known as a payday loan. It’s a decision he now regrets, he told a House subcommittee on Wednesday.
“It’s not good,” he said. “There’s no easy way out of it, unless you get lucky.”
Paquette was eventually able to clear his debt. But not before he paid $500 in fees on his $300 loan.
His employer, Rep. Frank Ferri, a Warwick Democrat, decided to do something about it. He has sponsored legislation that would trim the annual percentage rate for a payday loan in Rhode Island from a whopping 260 percent back to the previous rate of 36 percent.
“It’s a debt trap,” Ferri said, prior to the hearing.
Ferri said the rate used to be 36 percent, before the general assembly passed a law that effectively raised the rate to 391 percent. In 2005, it was lowered all the way down to 260 percent. That’s $1,300 in interest on a loan of $500, the maximum amount allowable under by law.
There were 143,201 payday loans made in Rhode Island last year for a total of more than $53 million, said Margaux Morisseau, with NeighborWorks Blackstone River Valley, a community-building non-profit based in Woonsocket.Only 2 percent of payday loans she said go to people who pay them all back and don’t take out another one.
“Payday lenders annually drain millions of dollars from Rhode Island families, mostly to out-of-state payday chains,” she told the House committee.
Morisseau said payday loans shops typically set up in the poorest areas of the state. They are illegal for military personnel, she said, as per a bill sponsored by Rhode Island’s own Senator Jack Reed because, as she put it, “they are seen as a threat to our national security.” Because these loans turn over quickly and carry such a high interest rate, they can be very stressful for those who choose them, she added.
Industry insiders at the hearing last night say such loans are the only way some people can get quick access to cash in an emergency. So did Rep. Peter Petrarca, D-Cranston, who exchanged heated words with Ferri.
But Moriseau said at last night’s hearing, “Safe, responsible, alternative products are now available to consumers. Nonprofits and Credit Unions have created easily accessed products that meet the needs of consumers at a reasonable interest rate.”
In an email, she provided these example:
- Capitol Good Fund lends $2000 loans at 15% APR. Their customers have taken out CGF loans to help get out of the payday lending debt trap.
- West Elmwood Housing Development Corporation is piloting the “Neighborhood Loan Store” that makes loans up to $1500 at 18-25% APR.
- Navigant Credit Union also recently launched “Smart Start” a safe, easily accessed alternative product at all of their branches. They loan $600, with a 90 day term, no credit required.