Sid Hastings/AP Photo
The manager of an Advance America location takes a phone call at the store. Rhode Island is one of two states in New England that allow payday lenders to charge exorbitant interest rates, thanks to lobbying efforts by lenders like Advance America.
According to a 2023 report from the Center for Responsible Lending (CRL), 27 states across the country allow payday lending companies to issue single-payment loans with triple-digit interest rates. In recent years, five states have capped these rates, including conservative Nebraska, offering hope that more state legislatures across the country would do the same. But the payday lending industry has other ideas.
Rhode Island is one of two states in New England that allow these exorbitant rates, thanks to lobbying efforts by lenders like Advance America of South Carolina. The average annual percentage rate (APR) on a $400 payday loan in Rhode Island is 261 percent, according to the CRL report. The effort to reform the state’s usury laws has been ongoing for over a decade, and last year the state House finally voted to close the loophole that allows these lenders to prey on working people, in overwhelming numbers. But the state Senate did not follow suit, and Rhode Islanders continue to be trapped in a cycle of debt.
The Economic Progress Institute, a nonpartisan research and policy organization in Rhode Island, released a policy brief this past February outlining the mechanics of predatory lending schemes and the legal loopholes that allow these schemes to persist. Under Rhode Island law, small-loan lenders can charge no more than 36 percent APR on a loan under $300, and even less for larger loans. However, payday lenders allow borrowers to take out loans by writing a check, which the lenders cash around two weeks after the loan is approved. Because of this, payday loans are recognized in Rhode Island as “deferred deposit transactions,” rather than as standard loans. Accordingly, payday lenders are legally required to register as “check cashers” and are therefore exempt from the interest rate cap.
Three out of four payday loans are a result of “churning,” or taking out a loan to repay an existing loan that’s due.
Rhode Island’s General Assembly—its name for the legislature—added this carve-out in 2001, which allowed out-of-state firms like Advance America to do business in the state. Advance America currently owns nine of the ten remaining payday loan stores in Rhode Island, making it the biggest lender in the state, according to the EPI brief.
Jessica Vega, senior policy analyst at Rhode Island Kids Count, has personal experience being caught in the payday loan debt cycle. As a college graduate living on her own for the first time, she needed cash to pay for her mounting living expenses. So, after seeing ads for payday loans and consulting a friend, she visited a payday loan center.
“I borrowed, I think it was whatever the max was at the time, which is $400, or $450,” Vega said. “They give you two weeks roughly to pay it back. So when those two weeks came, I realized I didn’t have that money. So I asked for an extension … I was constantly paying back the money because I was getting paid biweekly. So I’d pay the money, and then borrow the money again.”
At the time, Vega was using a payday loan center in Pawtucket. She eventually fell so far into debt that she had to visit another payday loan center in Providence to pay off her existing loan. It took her moving back home and taking on multiple jobs to finally pay off the debt, which took her around a year.
Vega’s story is common among payday loan borrowers both in Rhode Island and across the country. According to a fact sheet published by the Rhode Island Coalition for Payday Reform, three out of four payday loans are a result of “churning,” or taking out a loan to repay an existing loan that’s due. The payday loan business model depends on long-term use, with over 60 percent of their business generated by borrowers with 12 or more loans a year.
A 2018 report from the Rhode Island Advisory Committee to the U.S. Commission on Civil Rights found that payday lending companies primarily target working-class communities of color. Margaux Morisseau, co-chair of the Rhode Island Coalition for Payday Reform, had previously worked in community development in her hometown of Woonsocket, in a historically Black neighborhood with a growing immigrant population. She said that payday lenders in the area marketed their services aggressively to residents, leaving door hangers and putting out flyers. Their marketing framed payday loans as a quick and easy way to acquire cash, despite the availability of more affordable options offered by banks and credit unions.
Attempts to remove the check-cashing loophole have faced resistance in Rhode Island, despite the popularity of the reform effort among the general population. In 2011, Morisseau, alongside the Center for Responsible Lending, advocated for House Bill 5843, which would have lowered the interest rate cap for payday lenders from 260 percent to 36 percent. But the bill was removed from the agenda mere minutes before it was supposed to be voted on. An investigative report for The Providence Journal revealed that then-Speaker of the House Gordon Fox had removed the bill from the agenda without prior notice or explanation. Fox later told the Journal that he had no intention of bringing the bill to a vote and that it was added to the agenda “in error.” Fox began serving a three-year federal prison term in 2023 for accepting bribes and using campaign funds for personal expenses.
Payday loan companies have consistently lobbied against reform, arguing that their short-term loan offerings are necessary alternatives to traditional loans. Another former House Speaker in Rhode Island, William Murphy, is a registered lobbyist for Advance America, which pays him $30,000 a year.
This is the 15th year that legislation has been introduced to reform state law around payday lending, according to a June 3 press release from EPI. The House voted 70-2 on the last day of the 2023 legislative session to repeal the check-cashing loophole. This year, the reform bills are House Bill 7211 and Senate Bill 2141. Four Rhode Island general officers have voiced support for reform, including most recently state Attorney General Peter Neronha. A 2022 poll from CRL showed resounding support for the concept, with 59 percent of those surveyed supporting a 36 percent interest rate cap and only 10 percent opposed.
While the bills have garnered widespread support from lawmakers, the decision to hold a vote in the chambers is up to House Speaker K. Joseph Shekarchi and Senate President Dominick J. Ruggerio. Neither has allowed committee or floor votes to be held on these bills yet. The problem seems to be in the Senate, where Ruggerio recently announced a cancer diagnosis and hasn’t been in the State House for over a month. The Senate president did not move to pass the bill last year after it overwhelmingly passed the House.
The current legislative session in Rhode Island is expected to end this Friday, June 14. Reformers hope they don’t have to go another year fighting the industry on the loophole. An open letter to Shekarchi and Ruggerio, written by EPI and the Rhode Island Coalition for Payday Reform, highlights the urgency of passing the bills now: “There is no need to compromise or keep this bill for ‘further study’ when the only opposition all these years has been from the very industry that benefits from these predatory practices.”
