Rep. Patricia Serpa, a West Warwick Democrat, listens to testimony from Julie Townsend, vice president on government affairs at Purpose Financial, the parent company of Advance America. (Photo by Alexander Castro/Rhode Island Current)
There weren’t any questions from the Rhode Island House Committee on Corporations when Pawtucket Democratic Rep. Karen Alzate testified Thursday on her bill to reform payday loan practices.
After all, the committee has been there, done that, when it comes to the subject of stopping predatory lending.
“This is 16 years of history that we’ve been working on this bill. You all have the information,” Margaux Morisseau, co-chair of the Rhode Island Coalition for Payday Lending Reform, said in her testimony in support of the bill.
These loans provide speedy access to cash but have been criticized for high interest rates and potential harm to consumers, especially for the people with low incomes who might rely on them in financial emergencies.
There are 29 states that allow payday lending, but each state differs in its regulation of these financial products. While Rhode Island state law technically places a 36% maximum interest cap for loans under $300, storefront payday lenders can register as deferred deposit providers, and take advantage of a loophole that allows them to charge up to 260% interest. Thursday marked the reintroduction of perennial efforts to end the predatory practice in the Ocean State by closing the deferred deposit loophole.
When Morisseau began recounting the bill’s various opponents over the years, committee Chair Joseph Solomon Jr., a Warwick Democrat, didn’t want to rehash history and provided a gentle reminder: “I would like to remind you that, two years ago, this committee and this House passed this bill.”
In 2023, the bill left the corporations committee and went on to pass the House of Representatives with a 70-2 vote. It never advanced out of committee on the Senate side, though.
The legislation enjoys a wide variety of supporters. On this year’s bill, Rep. Brian Newberry, a North Smithfield Republican, serves as the GOP co-sponsor. Gov. Dan McKee, Lt. Gov. Sabina Matos, and Secretary of State Gregg Amore also submitted written testimonies in support of this year’s bill. General officers, including McKee, signed a petition in the waning days of the 2024 session urging lawmakers to pass the reform. But 2024 bills never advanced out of committee in either chamber,
Alzate wrote via text message Friday that she thought the hearing went well: “We had some strong support. I think our biggest push will have to be in the Senate. This is good public policy and we have other methods to help those who seek financial help.”
The Senate version of the bill was introduced by Sen. Ana Quezada, a Providence Democrat, in January. A committee hearing has not yet been scheduled. Advocates have long feared the bill’s dismissal at the hands of Senate President Dominick Ruggerio, who they attribute as the main source of resistance.
“The Senate President will review the legislation and testimony on the Senate bill when that goes through the public committee hearing process,” Greg Paré, a Senate spokesperson, said via email.
Larry Berman, a House spokesperson, echoed that sentiment: “Speaker Shekarchi will review the testimony from tonight’s hearing and discuss the issue further with the committee members and his House colleagues,” Berman wrote.
‘Robbing Peter to pay Paul’
Advocates from progressive policy organizations and state chapter of union federation AFL-CIO who spoke at Thursday’s hearing didn’t need additional time to review the legislation. Jessica Vega, a senior advocacy and community engagement manager at Rhode Island KIDS COUNT, testified as both an advocate and someone affected by payday lending. She had held back from telling her story in committee hearings in years past, she said, because of “the stigma of financial struggles.”
But Vega was ready to describe how, in her early twenties, the need to stretch her small paychecks led to her being trapped in a Groundhog Day of payday debt, taking out loans from secondary lenders to pay off the original lenders.
“Essentially I was robbing Peter to pay Paul,” Vega testified. “The only way I was able to break free was by moving back into my mother’s already cramped apartment and working around the clock. I was lucky. I have family support and the ability to take on more work. Many Rhode Islanders don’t have that option.”
Alan Krinsky, director of research & fiscal policy at the Economic Progress Institute, dug into the specifics of the loans in both his written and spoken testimonies.
“The rate is 260% when the loan operates normally,” Krinsky testified. “This is not the rate for a delinquent or unpaid loan. It’s the rate if you pay in full and on time. It’s the advertised rate, how the payday loans are designed to work.”
Krinsky also provided a March 12 screenshot that showed a 260% APR advertised on the website of Advance America, a payday lender that operates in the state.
Sister Mary Prendergast, who offered up a short testimony as well as a written statement on behalf of the Sisters of Mercy and the Poor People’s Campaign, said passage of the bill was a moral good. It’s not just the labor movement supporting this legislation, Pendergast said, but faith leaders as well. A rabbi and an Episcopal priest reverend were among those who submitted written testimony.
“This morning, when I woke up, I was thinking about each of you who became state legislators in order to help people,” Pendergast said. “I know that there are many, many situations in which you must go home at night and wonder if you have helped anyone. I know that feeling personally, but if you pass this bill, you can actually be sure that you have helped individuals, families and the community.”
Last resort?
The torrent of support for the bill was followed by testimony from industry advocates. Across the years, former House Speaker William J. Murphy has reliably shielded the payday loan industry and Thursday was no exception. Murphy is paid $30,000 a year from Purpose Financial Inc., the parent company of quick lending firm Advance America, to defend the loan company on Smith Hill.
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“I realize this is an emotional and a charged subject, but let’s look at the reality,” Murphy said, then proceeded to move like clockwork through advocates’ claims, characterizing them as inaccurate. People are not charged 260% on a loan, Murphy said, they are charged 10% over a course of 26 biweekly periods. Loans do not compound, he argued, and Advance America follows all state laws and regulations for payday loans, which are capped at $500.
Sheer necessity, Murphy suggested, should trump further regulation.
“We are almost a last resort for people to be able to borrow money,” he said.
The chair of the House Committee on Oversight, Rep. Patricia Serpa, a West Warwick Democrat, was probably the most inquisitive committee member of the evening, questioning both sides. Serpa was curious what happens when someone might have a legitimate and urgent need for cash.
“I need $350 to get a new tire to get to work,” Serpa said. “What do I do?”
Courtney Hunter, the head of community development for People’s Credit Union, which has six branches in Rhode Island, noted in her testimony that credit unions like hers have small loan programs with fairer interest rates for consumers. They can also help people with financial literacy. But lending industry advocates said those loans are too slow and too inaccessible for some consumers.
But what about when a person fails to pay back a loan, Serpa asked Bill Staderman of the Rhode Island Association of Financial Service Centers, who was testifying on behalf of lenders?
“What happens to me? You prosecute me? You chase me?” Serpa asked.
Staderman said the lender would try to work out a payment plan, because it would be too expensive to litigate.
“So essentially you’ll give me a second chance?” Serpa asked.
In the audience, bill proponents shook their heads.
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