Joins call on banks to stop making payday loans
PROVIDENCE, R.I. - General Treasurer Gina M. Raimondo and the Rhode Island Payday Lending Reform Coalition today joined a group of national payday lending reform advocates calling on federal regulators to take decisive action to stop banks from making unaffordable, high-cost payday loans.
"There is no place in our economy for financial products and services that exist to trap people in a cycle of debt," Raimondo said. "We need to work together at the state and federal level to ban this predatory lending practice and to impose tighter regulations on the banking institutions that choose to work with them."
On the state level, Raimondo, along with the Rhode Island Payday Lending Reform Coalition are urging the General Assembly to take steps to cap the interest rate at 36 percent in the state. Rhode Island is the only state in New England that allows triple digit interest rates for payday loans.
"We must take action to stop banks that push more and more people into debt through this type of lending," said Rev. Don Anderson, co-chair of the Rhode Island Payday Lending Reform Coalition. "We remain committed to being vocal opponents to the usurious payday loan interest rates."
According to the Center for Responsible Lending, research has shown that payday loans trap borrowers in a cycle of expensive long-term debt, causing serious financial harm to borrowers, including increased likelihood of bankruptcy, paying credit card debts and other bills late, delayed medical care, and loss of basic banking privileges because of repeated overdrafts.
Non-bank payday borrowers routinely find themselves unable to repay the loan in full plus meet their expenses for the next month without taking out another payday loan. A July 2011 analysis of actual checking account activity by the Center for Responsible Lending finds the same is true with bank payday loans:
• Bank payday loans typically carry an annual percentage rate (APR) of 365 percent based on the typical loan term of ten days
• On average, bank payday borrowers are in debt for 175 days per year
• Many borrowers take out ten, 20, or 30 or more bank payday loans in a year
• Many bank payday borrowers are Social Security recipients, and the banks take significant portions of their monthly checks immediately for repayment of bank payday loans
"Over the last year, the need for federal regulatory action has only become clearer," the letter states. "Please move quickly to ensure that payday lending by banks does not become more widespread and to ensure that those banks currently making payday loans stop offering this inherently dangerous product."
The letter was addressed to Ben Bernanke, chair of the Federal Reserve, Richard Cordray, director of the Consumer Financial Protection Bureau, Martin Gruenberg, chair of the Federal Deposit Insurance Corporation and Thomas Curry, Comptroller of the Currency.