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H 22°, L 6°A new bill introduced Wednesday could cap interest rates for payday lending stores with the goal of protecting Wisconsin consumers.
Rep. Gordon Hintz, D-Oshkosh, chair of the Assembly Committee on Consumer Protection, hosted a press conference to present the Predatory Lending Consumer Protection Act to other legislators and the public.
“We realized Wisconsin really doesn’t have any laws that govern [payday loan agencies],” Hintz said. “The biggest problem that we see with how payday loans are done now is there’s no consideration of income.”
If passed, the bill would require loan agencies lending $5,000 or less to obtain a state license. It would also call for a cap on payday loan rates at 36 percent.
Agencies that violate the new regulations would be subject to a $500 maximum in fines and up to six months in jail.
According to Hintz, payday loans are not like business or home loans because payday loan agencies do not evaluate a person’s cost of living or ability to afford the payments.
He added payday loan agencies also give an impractical two-week repayment plan, which most customers cannot fulfill.
Hintz also said payday lenders currently can charge triple digit interest rates on loans, which most people cannot afford to pay off. Those people are often forced to rollover their loan for another period.
This, Hintz said, starts a cycle of debt that escalates quickly and undercuts the economy in the long run.
Hintz added he is ashamed Wisconsin is one of the last states in the nation to take action against payday loan agencies but said the state does have the opportunity to evaluate what other states have done for reform.
“When we decided to move forward with the initiative, it was written from a consumer standpoint,” Hintz said. “Other [states’] reforms that may have been well-intentioned have been circumvented through loopholes and changes in definition.”
Hintz added the uniform cap rate of 36 percent will protect citizens from expensive loans, save them millions of dollars annually, protect against unaffordable repayment terms and reduce the amount of debt consumers accrue.
Mike Mikalsen, spokesperson for Rep. Steve Nass, R-Whitewater, said Nass is very supportive of the bill. Nass would like to deal with the issue unobtrusively, and added implementing a reasonable interest rate would be the least intrusive solution.
According to Mikalsen, the bill faces an uncertain future due to excessive lobbying by payday loan agencies.
“The agencies have no interest in compromising; they are trying to buy friends,” Mikalsen said. “This bill could be derailed not by merits but by influence.”
Mikalsen added most legislators are decent people who will make good decisions, but part of the problem is contributions limit the “give and take” for legislators.
Mikalsen also said the reason the payday loan industry is growing is because of the harsh economy and increased job loss.
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This story does not share the argument of payday lenders, who favor reform in Wisconsin. The problem is the 36 percent rate cap, which is a ban of the payday loan product and strips citizens of a needed short-term credit product.
The triple-digit interest rates quoted by critics is based on annual percentage rates. Payday loans are short-term and using an annual calculation is unfair and unrealistic.
Even if you use the APR calculation, the payday loan product is much cheaper than bank overdraft and NSF, which is what consumers will be forced into if Wisconsin passes this short-sighted legislation.
The FDIC reports that assuming a $27 overdraft fee, a customer repaying a $20 POS/debit overdraft in two weeks would incur an APR of 3,520 percent; a customer repaying a $60 ATM overdraft in two weeks would incur an APR of 1,173 percent; and a customer repaying a $66 check overdraft in two weeks would incur an APR of 1,067 percent.
That is far more expensive than any payday loan.
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“Hintz also said payday lenders currently can charge triple digit interest rates on loans, which most people cannot afford to pay off.”
Put this kind of business back in the hands of those who know how to get those loans paid - the loan sharks. The loan sharks can charge lower rates since they collect a greater portion of the debts. It make take a beatdown, a missing finger or busted kneecap to ensure that those debtors make their payments, but it’ll be better for them in the long run AND they will learn to be more responsible with their credit!
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Pay day loans where a cheaper alternative for me. My other opinion, bank fees. I really don’t appreciate big brother making my decisions and dictating what type of products are best for me. I knew the cost and time to pay back and it worked for me. Leave me alone, I am an adult and can make my own decisions.
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If you “really don�t appreciate big brother making my decisions and dictating” then I don’t think you’ll like Obamacare or much else of the coming Obamanation.
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I also found payday loans to be a cheaper short-term solution when my car broke down and I basically needed a quick emergency fund. I’m a responsible borrower and of course I want to find the loan that was going to be the cheapest. AS a responsible borrower, I shouldn’t have this option taken away from me!
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Mike Mikalsen, spokesperson for Rep. Steve Nass, R-Whitewater, is lying! So is Rep. Steve Nass! I have heard & seen in the newspapers that the payday lenders say they will come to the table to talk and work out a resolution with legislators.
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Other states have worked on payday loan reform with the industry quite effectively. Several states have limited the number of times someone can rollover the same loan. Also, in most states these companies must verify employment so that they know there is an ability to pay. What most people forget is that these are short term loans. If the company makes a loan to someone who they know can’t pay them, the company will LOSE their profit. It’s too expensive to sue for a 100 loan. As a business practice, they won’t make loans to people who have no ability to pay.
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Take a look at Florida’s regulations. A 36% cap would force the payday industry to shut down in the state. Do you really want to increase unemployment and lose revenues that the industry can or could provide in your state. If the industry shuts down in your state people will get the loans online for possibly a higher interest rate.
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I am one that has taken out these loans, and had to borrow from more than one to help repay the other one, all because my husband needed his heart medicine.and i did not have the funds to get it.now we are WORSE off than we were before,its hard to sleep at night , thinking about how much i have to pay these people every two weeks, then i do not have enough money to get thru the week.. I say GREAT that they are FINALLY doing something about these crooks, I have been paying since march..and that’s just the interest and what i can afford above that.
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I just talked to a man who borrowed 100 dollars at a 1000 percent interest rate. Come on!!! Who are we kidding? This is completely taking advantage of desperate people who need to be protected from greedy people. So sad!!
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Why are payday lenders attacked by “purpoted consumer advocates,” when banks and credit unions are charging four times more
avg. $27 fee on avg. $36 overdraft = $0.75 per dollar
vs.
0.17 per dollar for a payday loan?
Seems like there may be a political agenda at work.
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I am a poor elderly woman who has been caught up in the payday loan business. I can’t seem to get out. I am borrowing from Peter to pay Paul and it all seems hopeless. I cannot tell my children because I do not want them to know how irrisponsible my actions have been. They are wondering why my bills are not getting paid and why I put off seeing them. It is a terrible situation.
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I am a poor elderly woman who has been caught up in the payday loan business. I can’t seem to get out. I am borrowing from Peter to pay Paul and it all seems hopeless. I cannot tell my children because I do not want them to know how irrisponsible my actions have been. They are wondering why my bills are not getting paid and why I put off seeing them. It is a terrible situation.