Margaux Morisseau became a leader in the fight against payday lending after seeing its impact in the Constitution Hill neighborhood of Woonsocket. She works there as a community advocate for a nonprofit agency. This blue-collar neighborhood was once full of boarded up homes, and it has seen a comeback in recent years. But a payday lending shop moved in about three years ago and Morisseau says things have taken a turn for the worse.
“We saw a large spike in residents getting behind on rent,” she says, “and when we started looking at budgets, we started seeing a budget item for payday loans. People were paying their payday loans before they were paying rent, before they were putting food on their table, before buying such necessities as medicine.”
Local payday lenders charge an upfront fee of 10 percent, up to a maximum in a single loan of $450, based on borrowers’ proof of income. Critics like Morisseau say payday loans are a trap since people living paycheck to paycheck are already struggling to get by. She points to how the cost of the loans is the equivalent of an annual percentage rate of between 260 and 280 percent.
“This is price-gouging,” Morisseau says. “This is giving somebody a product at a completely unfair price and taking advantage of people in a vulnerable situation, and we need to protect citizens from that.”
When she’s not doing community work in Woonsocket, Morisseau co-chairs a coalition trying to lower the annual rate on payday loans to 36 percent. The Rhode Island Payday Lending Reform Coalition has grown in recent years to include scores of nonprofits, religious and labor groups, and such elected officials as Providence Mayor Angel Taveras and state Treasurer Gina Raimondo. In testimony earlier this month before the House Finance Committee, the treasurer said payday lending is bad for the state.
“It’s hurting people, it’s ruining lives, and it’s really weakening our state and our state’s economy,” Raimondo says.
Thanks to a bill passed by the General Assembly, payday lending took root in Rhode Island in 2001. The legislature increased fees for cash advances from 10 to 15 percent in 2005, and then cut the rate back to 10 percent in 2010. Rhode Islanders took out more than $75 million in payday loans in 2012, state figures show.
Jamie Fulmer is a vice president with the largest payday lender in the US, South Carolina-based Advance America, which has 19 storefront locations in Rhode Island. Payday lending is so lucrative that a Mexican corporation bought Advance America for $780 million last year.
Fulmer rejects the rap that payday lending preys on the poor. In contrast to the picture offered by critics, Fulmer says Advance America’s customers have a median income of $55,000. And he says they’re making a conscious choice as consumers over other alternatives.
“The $10 it costs to borrow $100 from Advance America is less expensive than the $35 customers will pay in overdraft fees,” Fulmer says. “It’s far less expensive than the $55 dollars they’ll pay in bounced check fees.”
Critics liken the typical annual percentage rate of 260 percent on payday loans to loan sharking. Yet Fulmer says if the same annual percentage rate was applied to overdraft fees or bounced check fees, they’d be between 800 and 3500 percent.
Advance America has an outlet in a tired shopping plaza off North Main Street in Pawtucket. On a recent weekday, customers were few and far between. One customer, Kyle McCloud, was taking out a $400 loan. He says he uses payday loans about once a month and doesn’t know anyone who’s gotten trapped in debt due to payday loans.
“I think it’s good,” McCloud says. “They help people when they need help. It helps me because I get paid every two weeks, so I need that layover.”
Yet during a recent House Finance Committee hearing, Roger Paquette, who works in a Johnston bowling alley, described getting caught in a vicious cycle due to bad credit and payday loans.
“If you’re going to survive the week, if you live week to week, you have to borrow again,” Paquette says. “And you try to tell yourself, it’s only $30, it’s only this, it’s only that. And you really don’t realize how bad it gets until you’ve gone there for a year, 18 months, two years. I’ve done it. I feel pretty stupid for doing it. But I couldn’t get out.”
Each side in the payday lending debate points to different studies to support their
own arguments. Critics say borrowers would turn to better alternatives if the payday lending industry went away. The industry warns of an increased reliance on unregulated Internet lenders and other problems.
Advance America also employs a well-known lobbyist, former House Speaker William Murphy. The current speaker, Gordon Fox, says Murphy doesn’t have any particular influence on the issue. In January, Fox said he saw payday loans as a valid tool for people without other resources. More recently, Fox says he’s getting mixed signals on the issue from constituents in his Providence district, which includes well-to-do East Side neighborhoods and hardscrabble Mount Hope.
“I’ve got some that say it’s a terrible thing and I’ve got some that say it’s an option,” Fox says, “and so that’s been my problem with it from the beginning.”
With just a few weeks left in the legislative session, it remains open to question whether the General Assembly will take action against payday lenders this year. The Rhode Island Payday Lending Reform Coalition says it isn’t going away and will keep fighting for as long as it takes to make a difference.