Senate Committee Hears Payday Lending Reform

Payday Lending reform wound up in the laps of the Senate Committee on Commerce this week, and the hearing was pretty packed with what seemed like an even split of advocates for capping payday loan interest rates at 36 percent, and employees of Advance America, one of two payday lenders operating in Rhode Island.

You can watch the full committee meeting here.

Proponents of capping rates included representatives of the NAACP, AARP, The Capital Good Fund, the RI AFL-CIO, and the RI Council of Churches.

The parade of Advance America employees that testified against the reform relayed stories of their customers calling payday loans “freedom” and their employees “heroes.”

Leo Sullivan, an Advance America employee, testified in opposition to the reform. Citing unintended consequences of payday lending reform, he said, “If you choose to limit customers ability to use our services, there may be consequences for those customers beyond what is readily apparent,” but he did not specify what these consequences might be.

Jamie Fulmer of Advance America said new restrictions aren’t needed and, taking a page from the CVS playbook, may force his company to withdraw from Rhode Island.

Testimony from the lenders themselves indicated that there are no other options for those who need small loans or those who have bad credit ratings, but in Rhode Island, the Capital Good Fund offers small loans, free tax preparation, and financial coaching for their customers, none of which are offered by payday lenders; other local financial institutions like Navigant Credit Union are getting in on the small, short-term loan business.

Research by the Pew Foundation has shown that payday loans don’t perform as advertised.

Andy Posner, founder and director of the Capital Good Fund, said “Every day I see people who have gone through payday loans and regret it, or those who think they need them, who go through our financial coaching, and realize that they don’t.”

A big difference between payday lenders and loans from other financial institutions is this: payday lenders do not report to credit agencies, and therefore, do not help their customers build credit history, which would help to create a more stable financial future.

Margaux Morrisseau, co-director of the Rhode Island Coalition for Payday Lending Reform and Community Director for NeighborWorks- Blackstone Valley, said, “We started to see many of the residents of our affordable housing programs who took advantage of these payday loans fall behind on their approved budgets. People have come to our offices, in tears, after falling into the cycle of debt created by these loans.”

“Representatives from Advance America have testified that the average customer takes out eight loans a year,” said Shawn Selleck, a Providence resident that has previously worked in the microfinance sector, “that should be indication enough that these customers need financial coaching, and this is not a service provided by Advance America or Check ‘n’ Go.” He added that it was also telling that not one direct beneficiary of payday loans had testified before the senate committee.

Mike Mancino, of the RI AFL-CIO, testified by saying, “I will avoid using poll data, charts, and graphs in my testimony and simply ask this: What do your conscience and heart tell you?”