News & Resources

Rhode Island looking into altering short term loans

Jun 07, 2012 Philip Burgess

When unexpected expenses arise, a number of families look into short term lending options, which often include short term loans. Lenders give out a loan in the amount expected on an individual's next paycheck. This can be a valid option for those who do not have enough saves and won't receive any income until their next check comes in. However, many lawmakers believe because of the fees and interest associated with the practice, necessary to keep the lending business afloat, the industry needs to follow more stringent laws. Legislators in Rhode Island are looking into changing some of the regulations. Proposed interest cap According to the Providence Journal, numerous leaders in the state are calling for a cap in interest that can be applied to these types of loans. Reverend Donald Anderson, the executive minister of the Rhode Island Council of Churches, said in an interview he believes interest should be no higher than 36 percent. Currently, the source noted, lenders are allowed to charge up to 260 percent per sum. Members of The Rhode Island Coalition for Short term Lending Reform have also called for the General Assembly to examine the interest rate laws more closely, the Providence Journal said. However, many lenders explain that charging just 36 percent on the amounts of money they loan would not be enough to cover basic overhead charges. A representative from Advance America, a South Carolina-based lender, told the New York Times' Dealbook "any federal law that would impose a national 36 percent A.P.R. limit on our services, if enacted, would likely eliminate our ability to continue our current operations." FDIC looking at banks On a national scale, other changes may also be coming to the industry. Recently, the Huffington Post reported, federal regulators launched an investigation into big banks offering short term loans. The source said though these options are usually offered from smaller companies, many institutions are consulting with third-parties to aid consumers. Some experts believe banks are offering high interest loans in states where short term lenders must follow interest regulations, according to the source, giving an unfair advantage to participating banks. The Huffington Post reported many banks are reeling from a lack of income from overdraft fees, because many consumers have pursued overdraft protection plans. The source said banks, including Wells Fargo, Regions Bank and US Bank have all allegedly begun offering advance deposits to customers.