Letter: Payday Lenders Harmful to Consumers

Recent attempts by payday lenders to use the media to promote their product comes as little surprise. There is, afterall, pending state legislation which could cost these predatory lenders millions of dollars in revenue. These shortsighted attempts are nothing more than payday loan industry rhetoric at its finest.

Since I’m a former manager for Advance America, I feel like I have to respond.
Payday lenders argue that customers seek payday loans as a “responsible way” to manage their finances. What they tactfully ignore, however, is the high rate of frequency at which customers use the payday loan product. The truth is, an overwhelming percentage of customers pay their loan every two weeks and then re-borrow upon every visit. In many cases, this goes on for years because customers just can’t seem to get out of what appears to be a never-ending cycle of payday loan debt. The fact is, that’s how these companies make their money.

Payday lenders make it sound as if their product is a one-time deal. They also claim their fee of $40 for a $400 loan is not only sensible, but affordable. But in my own experiences, I’ve seen customers continue borrowing for years. Time and again I’ve witnessed customers get caught-up in the so-called payday loan debt cycle, and it was my job to restrict customer repayment plan options and encourage the repetitive use of the payday loan product.

Payday lenders also suggest that the fees for these loans are generally small when compared to other consumer “options.” However, they never fail to ignore the fact that repeat customers spend bewteen $500 and $1200 annually on payday loan fees. Since the majority of customers are, in fact, repeat customers, the dollars add up to the kind of profits even Bank of America and National Grid would be envious of. And while these other companies charge fees which may seem excessive to some, neither company charges 260 percent interest the way payday lenders do.

Countless times, customers have told me they wish they could just pay their loan off and walk away. But because they have to make ends meet, many customers simply cannot afford to fork over hundreds of dollars and walk out the door. Most customers, ultimately, find themselves in an even worse situation than before they took out a payday loan. So, the majority of customers continue to simply pay their loan and then take out another one on the spot for the same amount. It becomes, then, just another bill for the consumer to pay. That is how payday lending operates.

Honestly, how can this be good for consumers?

As a former training manager for the nation’s largest payday lender, I can tell you with certainty that payday lending does more harm than good. Now is the time for the General Assembly to pass legislation limiting the fee amount these lenders can charge. Until then, payday lenders will continue to make huge profits off the backs of decent, hard-working Rhode Islanders.

Stephen V. Martino