A coalition of non-profits and private companies has established the Woonsocket Payday Loan Alternative Program, an experiment in consumer lending that could help convince Rhode Island legislators to abolish high-cost payday loans. The program, a joint venture of the United Way and the Capital Good Fund, is scheduled to launch on Nov. 4 in Woonsocket, R.I.
Critics of payday lenders, working under the Rhode Island Coalition for Payday Lending Reform banner, staged a lobbying campaign at the Statehouse last year to outlaw the products, saying that such loans exploit low-income consumers and trap them in a cycle of debt. "These services pop up in places where low-income people who don’t have other alternatives live," says United Way President Anthony Maione. The United Way provided a grant of $57,000 for the payday alternative program, with help from the Capital Good Fund, to cover operational costs. The initiative will make loans with a line of credit provided by Navigant Credit Union. The idea is to make small, short-term loans of about $300 to $500, capping interest at an annual rate of no more than 36 percent -- a fraction of the 260 percent rate allowed for payday lenders in Rhode Island.
A loan from the program may take about two days to approve, longer than with payday lenders, and will encourage borrowers to participate in a financial-literacy or money-management program through NeighborWorks Blackstone River Valley or Family Resources Community Action Program.