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Rhode Island short term lending bill would cap interest rates at 36 percent

Jun 22, 2011 Todd Milner

Currently, Rhode Island is the only state in the Northeast that permits a short term loan interest rate above 36 percent, the Johnston Patch reports. However, House Bill 5562 may change that. The legislation is sponsored by Representative Frank Ferri, a Warwick Democrat. Under the bill, short term loans would be capped at a 36 percent annual interest rate, repealing short term lenders' special exemption that allows annual charges of up to 260 percent on such loans, meaning that a two-week $100 loan would cost an additional $10 in interest, the source notes. Additionally, national mirror protections for members of the military making credit decisions would be enacted, and state residents would be banned from taking out high-interest short term loans via the internet. "I think we have got to make credit available to people at affordable rates," said Congressman David Cicilline, the former mayor of Providence, quoted by the news source. "We ought to have a cap in the region that protects families and low-income individuals from paying these outrageously high interest rates." Short term lenders argue that a cap would eliminate their ability to operate in Rhode Island. There are currently more than 30 short term loan centers in the state, 20 of which are owned by South Carolina-based national chain Advance America. A recent editorial in the Providence Journal came down on the side of short term lenders, arguing that the loans are a simple and straightforward way for low-income or overextended citizens to obtain money quickly, and the high credit risk these consumers present is the reason for the high interest rates. According to the editorial, short term lenders make a 6 percent profit. "It is important to remember that our customers have a clear rationale for selecting the cash advance option," said Patrick O’Shaughnessy, the CEO of Advance America, in a conference call quoted by Patch. "They do so because it makes personal and economic sense for them. The demand for short-term credit options is undeniable." The Texas House of Representatives recently passed a short term lending bill that - if signed by Governor Rick Perry - will require short term lenders to make more detailed disclosures about interest rates and fees to consumers making credit decisions. The legislation would reclassify short term and auto title loans as credit access businesses, negating their current designation as credit services organizations. Under the present classification, lenders' fees and terms are mostly unregulated.