• Payday lenders in Rhode Island exploit a legal loophole to charge exorbitant interest rates, trapping borrowers in a cycle of debt.
• These loans, often used for basic necessities, carry triple-digit APRs, leading to devastating financial consequences for vulnerable families.
• While other states have banned or regulated payday lending, Rhode Island has yet to take action.

As Rhode Islanders struggle to make ends meet in an increasingly uncertain economy, one threat continues to fly under the radar while quietly wreaking havoc on our communities ‒ payday lending. These predatory loan shops, with their bright signage and promises of fast cash, lure in the most vulnerable among us with what looks like a lifeline, but is in truth a trap. It’s time for our state to close this loophole once and for all.

Payday lenders advertise themselves as providers of quick financial help, especially for those with low incomes or bad credit, but the reality is far more sinister. These loans come with triple-digit annual percentage rates, sometimes over 260%, that trap borrowers in a vicious cycle of debt. In Rhode Island, unlike in many other states, these practices are still legal because of a carve-out in our state’s usury laws. That means payday lenders can charge exorbitant interest rates that would be illegal for any other lender.

The consequences are devastating. Borrowers often take out a loan to cover basic needs ‒ rent, groceries, medical bills ‒ only to find that when the loan comes due, they can’t pay it back, so they take out another loan. And then another. What started as a $300 loan can spiral into thousands of dollars of debt, causing long-term financial harm. For families already living paycheck to paycheck, this cycle can lead to eviction, bankruptcy, or worse.

Make no mistake, the storefronts you see in our neighborhoods are just the beginning. The payday lending industry has expanded online, using apps and digital platforms to reach deeper into communities and continue exploiting those who are struggling. In an economy where inflation remains high and wages stagnant for many, people are more desperate than ever, and the lenders know it.

We cannot allow this to continue. Rhode Island has the opportunity and the moral obligation to step up and protect its residents. More than a dozen states, from New York to Colorado, have already banned or tightly regulated payday lending. These reforms work. After these protections went into place, research shows that borrowers saved hundreds of millions of dollars, with no decrease in access to credit ‒ just an end to exploitative lending.

There is no justifiable reason for us to delay any longer. We need legislation like the bill (H5042) that I introduced that ends the payday loan loophole and caps interest rates at a reasonable level, just like we do for other lenders. We must also invest in safer, community-based financial alternatives ‒ credit unions, small-dollar loan programs and emergency assistance ‒ so that people facing tough times aren’t forced into debt traps to begin with.

Let’s be clear, this is about economic justice. It’s about saying that Rhode Island values people over profit. We must close the payday lending loophole and protect our communities from financial predators. The time for action is now.

Rep. Karen Alzate, a Democrat, represents District 60 in Pawtucket and Central Falls.