Raimondo takes aim at payday loans


When she last spoke to the Warwick Rotary Club, General Treasurer Gino Raimondo called pension reform critical to the future economic stability of the state. Last Thursday Raimondo was back with a new campaign. She wants to change state finance laws to apply to payday loans and she says if we don’t, “It’s going to be bad for all of us.”

She accused payday loan companies of “preying” on people, especially people on Social Security SSI. The companies charge 10 percent on a two-week loan, which, Raimondo pointed out, amounts to a 260 Annual Percentage Rate (APR). The maximum APR financial institutions can charge is 36 percent. Raimondo wants to see the same rates apply to payday loans, which, she acknowledged, would force payday companies to close their doors in Rhode Island.

According to data provided by her office, two companies that operate under the names of Check ’n Go and Advance America Cash Advance, with a combined total of 29 stores in the state, issued nearly 204,000 loans totaling $78.6 million in 2012. This is up from 183,000 and $70.5 million in 2011.

The volume of loans and total amount borrowed has climbed from 95,931 loans with a total value of $35.8 million from 2009.

Raimondo said many of those who take out the loans fail to pay them off within the two weeks and become victim to borrowing again and again. She put the average at eight loans per individual per year.

Raimondo likened the situation to sub-prime mortgages, where people who couldn’t afford paying off the long-term debt jumped in nonetheless. Compounding the problem, lenders weren’t checking the credit worthiness of those they were making the loans to.

She pointed out that payday loan companies only require a license and a bank account to make a loan.

“There’s no evaluation of the ability to repay. Does that sound familiar?” she asked.

Raimondo thinks individual bankruptcies spell trouble for the state’s economy and everyone suffers. Her answer to break this cycle is “financial empowerment” through a three-phase process, starting with legislation that would close the 36 percent “loophole” for payday lenders.

That debate is scheduled to take place today, when legislation introduced by Senator Juan Pichardo is heard by the Senate Commerce Committee. Raimondo expects a counter argument, as Advance America, Cash Advance Centers with 20 stores statewide have retained some of “the highest priced influential lobbyists” in the state, including former House Speaker William Murphy. She said that is OK but, “My job is to stick up for everybody else.”

Secondly, she said, the state needs to create “safe alternatives” to costly payday loans and educate people through financial literacy programs. Finally, she said she would be talking with the state’s Congressional delegation to seek regulations to control “big banks” from making online payday loans.

When the Pichardo bill is brought up today – similar legislation has been introduced in the House by Warwick Rep. Frank Ferri – Jamie Fulmer, senior vice president of Advance America, plans to be there.

Fulmer is up to speed on Raimondo’s latest campaign and he takes umbrage at statements saying payday lending could significantly impact the state’s economy.

“You have to keep the use of payday loans in proper context; they are not the root cause of fiscal malaise,” he said in a phone interview Friday.

He said that, in five years, there has been only one complaint to the department of regulation over payday loans.

“If it is as bad as they say it is, you would have thought there would be more complaints,” he said.

He said the Rhode Island payday loans, capped by law at $450, “help people get past a short-term fiscal difficulty” and avoid more costly alternatives. When obtaining a loan, the borrower writes a check for the amount, plus the fee, which the company cashes after the two weeks.

Alternatively, Fulmer said, these people could face overdraft fees or late payment fees that far exceed the 10 percent of a payday loan. He put the APR of those fees, if calculated as interest rates, at 800 to more than 3,000 percent.

“This [payday loan] is a credit product that has got to be used carefully, as with any credit product,” he said. He said it is “disingenuous” to use a one-time 10 percent fee for two weeks and project it over a year to come up with 260 percent.

“It is confusing to me that customers like it [the payday loan] and have not complained about it, yet it has such controversy,” he said.

Fulmer said if payday loan companies were forced to close, it would not only mean the loss of a short-term loan product, but about 87 jobs.


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Looks like Gina is looking for more publicity here. I applauded her on pension reform to a point but payday loans are not a problem. No one is being lured into stores. This is a solution looking for a problem.

Tuesday, April 2, 2013