AARP: Reform Payday Lending in Rhode Island

In April 16 testimony before the House Finance Committee, AARPRI Advocacy Director Deanna Casey and volunteer Gerald McAvoy tell lawmakers that many trapped in the cycle of payday loans are Rhode Island senior citizens. They represent, Casey added, "a growing and significant share." Payday lenders target Social Security, disability and veterans benefits.

Watch Casey and McAvoy's testimony beginning at 17:30 in the video below, or you may watch the entire hearing. Also, below the video is the written testimony AARPRI submitted to the committee.

To learn more about payday lending in Rhode Island, visit http://www.ripayday.org/

AARPRI

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AARPRI

Chairman Gallison and Members of the Committee:

My name is Deanna Casey and I’m the Associate Director for Advocacy for AARP Rhode Island, representing more than 130,000 members in the state. Thank you for the opportunity to speak today. I would like to share with you AARP’s enthusiastic support for House Bill H7285, An Act Relating to Financial Institutions – Small Loan Lenders, which would limit high-cost short-term lending, sometimes called payday lending, that traps low income consumers in a cycle of unaffordable debt.

Payday lenders charge outrageous interest rates and impose fees designed to make it inevitable that the borrower will be unable to repay the loan. Payday lenders understand that borrowers often will not be able to both pay their loans and make ends meet until the next payday, meaning borrowers are forced to re-borrow. Payday loans by design are debt traps. The business model depends on keeping borrowers stuck in this long-term high cost debt. More than 60% of payday loan revenue is generated by borrowers with 12 or more loans a year. As industry leaders themselves acknowledged, the payday lending business model depends on keeping borrowers in debt.

Older people are frequently targeted for these predatory loans. Though older Americans do not make up a disproportionate share of payday borrowers overall, they make up a significant and growing share. As noted by the Wall Street Journal, “such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran's benefits.” A study commissioned by the WSJ shows that payday loan shops cluster near housing for seniors and the disabled. Payday lenders make these high-cost loans available to borrowers whose only source of income is a Social Security or disability check despite efforts by the federal government to limit payday lender access to Social Security benefits.

The harm caused to older people by these lenders is profound. Increasingly, people are nearing their retirement years with high, even unaffordable levels of debt. The consequences of unaffordable debt can be devastating, especially at a time in one’s life when income typically decreases, medical expenses increase, and remaining working years are limited.

The harm payday loans cause is not limited to the borrowers. A recent study evaluated the injury to the U.S. economy in lost spending and in jobs lost as a direct result of payday lending. The Insight Center for Community Economic Development (Insight Center) found “that the payday lending industry had a negative impact of $774 million in 2011, resulting in the estimated loss of more than 14,000 jobs. U.S. households lost an additional $169 million as a result of an increase in Chapter 13 bankruptcies linked to payday lending usage, bringing the total loss to nearly $1 billion.” This amounts to a loss of “an estimated 24 cents” to the U.S. economy for each dollar in interest paid. Payday lending costs Rhode Island an estimated net loss of over $1.6 million.

It is time to put an end to the outrageous rates allowed with payday lending and the harm it causes to Rhode Island and its citizens.

Thank you again for your time today.

 AARPRI