Rhode Island Enacts 36% APR Cap on Payday Loans

Categories: Rhode Island Business NewsRhode Island News

Rhode Island's new law limits payday loan interest rates to 36% APR, promoting consumer protection.

News Summary

Rhode Island has passed a new law limiting payday loan interest rates to 36% APR, effective January 1, 2027. This landmark decision aims to protect consumers from exorbitant rates and comes after a long legislative struggle. The law is expected to benefit low-income residents who are often affected by predatory lending. However, some critics worry about the delayed implementation and its potential impacts on credit access.

Rhode Island Enacts 36% APR Cap on Payday Loans

Rhode Island Governor Dan McKee has enacted a significant legislative change by signing a bill that protects residents from exorbitant payday loan interest rates. The new law prohibits payday lenders from charging annual percentage rates (APRs) exceeding 36%. This landmark legislation will take effect on January 1, 2027.

Prior to this law, payday loans in Rhode Island carried a staggering typical APR of 261%, according to data from the Center for Responsible Lending (CRL). The bill’s approval marks the end of a 15-year legislative struggle aimed at capping these interest rates, with advocacy efforts dating back to 2011.

Consumer Protection and Legislative Efforts

The passage of the payday loan cap has been hailed as a victory for consumers, with proponents arguing that it will enable Rhode Islanders to keep millions of dollars that would otherwise have gone to predatory lenders. The legislation is expected to significantly benefit low-income residents and communities of color, who are often disproportionately affected by high-interest loans.

Although the cap sets an important precedent, critics have expressed concerns over the effective start date being too far in the future. Advocates for change, including representatives from the CRL, have called for payday lenders to cease their predatory financial practices before the law officially takes effect.

Support from Local Leaders and Community Advocacy

Governor McKee emphasized the importance of protecting those who rely on short-term loans for emergency situations, such as medical bills or car repairs. The momentum for reform has been bolstered by public protests and advocacy from organizations dedicated to reducing poverty in Rhode Island, including the Rhode Island Interfaith Coalition.

The former House Speaker, William Murphy, a lobbyist for Advance America, voiced opposition to the legislation. He warned that implementing such a cap could lead to job losses and diminished access to credit for Rhode Islanders.

Statistics and Economic Impact

In 2022, Rhode Island borrowers paid nearly $2.8 million in interest and fees related to payday loans. This figure was based on approximately $28.2 million borrowed across more than 80,650 loans. Research indicates that a staggering 80% of payday loans are reborrowed within a mere two weeks, perpetuating a cycle of debt and financial instability.

Polling data has shown that there is strong bipartisan support among voters for capping interest rates on payday loans, highlighting a shared desire for reform across the political spectrum. With this recent legislative change, Rhode Island joins 21 other states and the District of Columbia in implementing strong measures to control payday loan interest rates.

Regional Context and Future Considerations

Other states in New England have adopted similar caps, resulting in an estimated annual savings of $252.7 million for residents in reduced borrowing costs. Lawmakers decided to amend the original legislation to delay the effective start date, allowing payday lenders time to adjust their operations and comply with the new law.

House Speaker K. Joseph Shekarchi expressed support for the bill, reflecting its favorable reception in previous legislative sessions. The ultimate goal of this legislation is to prevent predatory lending practices that have historically trapped borrowers in a never-ending cycle of debt due to exorbitantly high interest rates.