Consumer advocates say Wisconsin is among the worst states in the country when it comes to providing safeguards against what they call "predatory lenders."That would change under a bill introduced in the Assembly last week by Rep. Gordon Hintz, D-Oshkosh, that would cap interest rates on so-called payday loans at 36 percent and require all lenders other than financial institutions making loans of $5,000 or less to obtain a state license.
"Wisconsin is the only state with no laws regulating the payday lending industry whatsoever," said Jennifer Johnson, senior legislative counsel for the Center for Responsible Lending, a nonpartisan consumer research group based in Durham, N.C. "The sky's the limit as far as what interest rate these companies can charge in Wisconsin right now."As a result, those rates average more than 500 percent on an annual percentage basis, Johnson said, calling such terms abusive and harmful to working families.
The payday loan industry, however, maintains that the companies offer a service in demand by Wisconsin consumers in need of short-term cash.The proposed 36 percent rate cap on the annual percentage rate would wipe out the industry in Wisconsin, eliminating more than 1,100 jobs, because it no longer would be profitable, predicted Jamie Fulmer, a Wisconsin spokesman for Advance America Cash Advance, the nation's largest payday lending firm, which has 2,700 offices in 33 states. The company operates 67 offices in Wisconsin, including one in Eau Claire.
Fulmer argued it's unfair to apply the APR to a loan intended to be repaid in two weeks. Wisconsin consumers generally pay a flat $20 fee to borrow $100 for two weeks, and 97 percent pay those loans back within a day or two of the due date, he added.Applying a 36 percent APR to a two-week loan for $100 would generate a finance charge of only $1.38, which wouldn't provide enough income to cover overhead costs, Fulmer said.
"The current bill is certainly not just an attempt at additional regulation of the payday loan industry; it's an attempt to eliminate the payday loan industry," he said. "It is our belief that there are certainly better ways to provide additional protection to consumers than by eliminating an industry altogether."A payday loan is essentially a short-term advance on the borrower's next paycheck that the borrower must pay back within a few weeks.
One of the worst problems with that arrangement is that many borrowers can't afford to repay their loans that fast and thus end up taking out new payday loans to cover the original ones, trapping borrowers in a cycle of ever-increasing debt, said Jean Ann Fox, director of financial services for the Washington, D.C.-based Consumer Federation of America."These loans put an important asset, your bank account, at risk," Fox said. "They don't solve your problem; they just put it off by one payday."Hintz characterized his Predatory Lending Consumer Protection Act as an effort to stop lenders from taking advantage of people in desperate times with no consideration of income or their ability to repay loans."Unregulated payday lending is neither a necessary service nor a sustainable model for the long-term economic prosperity of our state," he said.Fulmer countered that consumers have shown they appreciate the availability of payday loans by taking them out so often.
Many people find the loans are cheaper, if repaid on time, than the fees associated with such alternatives as bounced checks and late payments on high-rate credit cards, he said."That's why consumers have turned to this product - because it's less expensive," Fulmer said.Hintz, chairman of the Assembly Committee on Consumer Protection, said the rise of the industry was an unintended consequence of Wisconsin eliminating its usury law in 1995 that capped interest rates at 18 percent to enable creditors to compete nationally.Since that time payday lenders have proliferated in strip malls and on street corners throughout the state. The industry grew from 64 offices making $11.2 million worth of loans in 1996 to 542 offices making $723.2 million in loans last year, according to the state Department of Financial Institutions.
It's not often legislators entertain bills with the potential to eradicate such a fast-growing industry, but in the case of payday lenders, Rep. Kristen Dexter, D-Eau Claire, said the cost to society appears to be far greater than the benefit provided to some consumers.Dexter, one of 43 Assembly and 15 Senate co-sponsors of the bill, said she has heard many horror stories from constituents who have had their shaky financial situations made worse by payday loans."Constituents have been overwhelmingly in support of doing something about this industry," she said. "I think it's generally accepted that this is an industry that takes advantage of people."
Another co-sponsor, Trempealeau Democratic Rep. Chris Danou, said he encountered several people when he worked in law enforcement who talked about how payday loans compounded their financial problems.Danou said it's time consumers are protected with some kind of regulation, even if the bill changes during negotiations."I think even the industry realizes the Wild West days are over," he said.Statistics from the Center for Responsible Lending show that 15 states plus the District of Columbia have enacted payday loan rate caps ranging from 17 percent in Arkansas to 60 percent in Georgia.Though the payday loan industry has made hundreds of thousands of dollars in campaign contributions to legislators and is represented by 27 lobbyists, Hintz said he is optimistic the bill will pass before the end of the spring legislative session in May.
"Wisconsin is the only state with no laws regulating the payday lending industry whatsoever," said Jennifer Johnson, senior legislative counsel for the Center for Responsible Lending, a nonpartisan consumer research group based in Durham, N.C. "The sky's the limit as far as what interest rate these companies can charge in Wisconsin right now."As a result, those rates average more than 500 percent on an annual percentage basis, Johnson said, calling such terms abusive and harmful to working families.
The payday loan industry, however, maintains that the companies offer a service in demand by Wisconsin consumers in need of short-term cash.The proposed 36 percent rate cap on the annual percentage rate would wipe out the industry in Wisconsin, eliminating more than 1,100 jobs, because it no longer would be profitable, predicted Jamie Fulmer, a Wisconsin spokesman for Advance America Cash Advance, the nation's largest payday lending firm, which has 2,700 offices in 33 states. The company operates 67 offices in Wisconsin, including one in Eau Claire.
Fulmer argued it's unfair to apply the APR to a loan intended to be repaid in two weeks. Wisconsin consumers generally pay a flat $20 fee to borrow $100 for two weeks, and 97 percent pay those loans back within a day or two of the due date, he added.Applying a 36 percent APR to a two-week loan for $100 would generate a finance charge of only $1.38, which wouldn't provide enough income to cover overhead costs, Fulmer said.
"The current bill is certainly not just an attempt at additional regulation of the payday loan industry; it's an attempt to eliminate the payday loan industry," he said. "It is our belief that there are certainly better ways to provide additional protection to consumers than by eliminating an industry altogether."A payday loan is essentially a short-term advance on the borrower's next paycheck that the borrower must pay back within a few weeks.
One of the worst problems with that arrangement is that many borrowers can't afford to repay their loans that fast and thus end up taking out new payday loans to cover the original ones, trapping borrowers in a cycle of ever-increasing debt, said Jean Ann Fox, director of financial services for the Washington, D.C.-based Consumer Federation of America."These loans put an important asset, your bank account, at risk," Fox said. "They don't solve your problem; they just put it off by one payday."Hintz characterized his Predatory Lending Consumer Protection Act as an effort to stop lenders from taking advantage of people in desperate times with no consideration of income or their ability to repay loans."Unregulated payday lending is neither a necessary service nor a sustainable model for the long-term economic prosperity of our state," he said.Fulmer countered that consumers have shown they appreciate the availability of payday loans by taking them out so often.
Many people find the loans are cheaper, if repaid on time, than the fees associated with such alternatives as bounced checks and late payments on high-rate credit cards, he said."That's why consumers have turned to this product - because it's less expensive," Fulmer said.Hintz, chairman of the Assembly Committee on Consumer Protection, said the rise of the industry was an unintended consequence of Wisconsin eliminating its usury law in 1995 that capped interest rates at 18 percent to enable creditors to compete nationally.Since that time payday lenders have proliferated in strip malls and on street corners throughout the state. The industry grew from 64 offices making $11.2 million worth of loans in 1996 to 542 offices making $723.2 million in loans last year, according to the state Department of Financial Institutions.
It's not often legislators entertain bills with the potential to eradicate such a fast-growing industry, but in the case of payday lenders, Rep. Kristen Dexter, D-Eau Claire, said the cost to society appears to be far greater than the benefit provided to some consumers.Dexter, one of 43 Assembly and 15 Senate co-sponsors of the bill, said she has heard many horror stories from constituents who have had their shaky financial situations made worse by payday loans."Constituents have been overwhelmingly in support of doing something about this industry," she said. "I think it's generally accepted that this is an industry that takes advantage of people."
Another co-sponsor, Trempealeau Democratic Rep. Chris Danou, said he encountered several people when he worked in law enforcement who talked about how payday loans compounded their financial problems.Danou said it's time consumers are protected with some kind of regulation, even if the bill changes during negotiations."I think even the industry realizes the Wild West days are over," he said.Statistics from the Center for Responsible Lending show that 15 states plus the District of Columbia have enacted payday loan rate caps ranging from 17 percent in Arkansas to 60 percent in Georgia.Though the payday loan industry has made hundreds of thousands of dollars in campaign contributions to legislators and is represented by 27 lobbyists, Hintz said he is optimistic the bill will pass before the end of the spring legislative session in May.
No comments:
Post a Comment