Cracking down on predatory payday loan lenders

February 28, 2010

Last month the state Assembly passed legislation to crack down on the practice of predatory payday lending in Wisconsin. I have been a longtime advocate for capping the interest rate that these loan companies can charge consumers. However, that idea did not garner enough support among my colleagues. The final language of the bill offers meaningful consumer protection and gained wide bipartisan support.

The Responsible Lending Act, as the legislation has been dubbed, bans auto-title loans; caps loans at a maximum of $600 or 35 percent of the borrower’s biweekly income, whichever is less; and restricts the practice of rollovers. A rollover happens when a borrower does not have the money to repay the loan when it comes due. The borrower then makes another loan to pay back the first one. These rollovers trap people in a cycle of debt, all too often leaving them in financial ruin. This bill goes a long way toward protecting people against these unfair practices.

In addition to these restrictions, the bill provides borrowers the option of repaying the outstanding debt over four equal payments, without incurring any additional penalties or fees. This will help make repayment of these loans more manageable for many people. Loan companies must also disclose the interest rates and fees that are associated with the payday loan.

All of these provisions are a step in the right direction to rein in this predatory industry. The national financial crisis has been fueled in part by a lack of regulatory oversight of the financial industry. In Wisconsin, the payday loan industry has exploded over the last 15 years from just two payday stores in 1995 to over 500 in 2008. This legislation cracks down on a system that prioritizes the profit of loan sharks over the protection of consumers. Wisconsin will no longer be fertile ground for predatory payday loan companies to do business.

Jon Richards is the state representative for Wisconsin’s 19th state Assembly District, which includes Bay View, the Third Ward, eastern downtown, and the East Side. His website is jonrichards.org. He can be reached at (888) 534-0019 or rep.richards@legis.wi.gov.

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Comments

5 Comments on "Cracking down on predatory payday loan lenders"

  1. Dip on Mon, 1st Mar 2010 3:05 pm 

    congratulations on putting thousands of wisconsin workers out of work in the process and killing the revenues your state could have made by having more sensible regulation that allows the lenders to exist profitably and pay the state for licensing. Really smart people you have running your state wisconsin? Now when people without credit need a loan they can just bounce checks en masse or go to the unregulated, unlicensed, offshore internet lenders where they will be abused like crazy. The road to hell is paved with good intentions.

  2. Lender Chick on Mon, 1st Mar 2010 5:54 pm 

    The regulations will not allow payday lenders to stay in business. So when you talk about how, under the new bill, borrowers can pay back their loan in four easy payments, they won’t be able to do that because there will be no more payday lenders to offer them that loan.
    I work for a payday lending company and we always disclose the fees and interest rates we charge for these unsecured loans. It’s a four page document that borrowers have to read and initial. We explain everything very clearly every time we make a loan so our customers know exactly what they are getting into.
    The loans are cheaper than re-connect fees for lack of payment on your electricity bill, and less than NSF fees charged by banks. If your car needs an unexpected repair so you can go to work, you can take out a small loan, get the car fixed and continu working. If you borrow $100 for two weeks, you pay us back $120 when you get your next paycheck.
    -Sally Claunch

  3. Belinda on Wed, 3rd Mar 2010 6:33 am 

    If you ban payday lending or enact laws that make it impossible for the payday lender to remain in business, it doesn’t address the need that is out there. People go to payday lenders for a reason; they have nowhere else to turn. Banks have tightened up credit, nsf fees are astronomical and the economy is in shambles. I work for a payday lender and the customers that I see have an emergency that they need help with. They are grateful that we are there to help them because their family members are in the same boat as they are. Some regulation of any industry is fine. It needs to be done for the right reasons though and with a full understanding of what the outcome will be for the people that it affects.

  4. Amber on Fri, 5th Mar 2010 3:28 pm 

    If the payday loan industry in Wisconsin grew from 2 to 500 in a matter of 15 years, then there is an obvious need for that service in the state. By capping the interest rate, the lenders will not be able to stay in business, resulting in many more people not being able to meet short cash needs quickly. The need doesn’t go away because the lenders go away. If you have never had to use a payday loan, then you may not be able to relate to the people who have. I work for a payday loan company, but I can also relate to the people who need this service because I’ve been there. Most of the people that come in have no where else to go and a payday loan is there alternative.

  5. Mark Johnson on Mon, 8th Mar 2010 10:13 am 

    The fact of the matter is this…. No one will ever experience “financial ruin” over $600 dollars…. The cycle of debt that Jon Richards describes is just not accurate. The reason for the growth in this industry is due to consumer demand for the product.. If states continue to legislate these lenders out of business, they will lose all control and ability to regulate this business. Thus, they will lose their ability to protect the consumer. People will still need to find solutions to short term financial needs…. They will be forced to use on line products or worse… and that alternative provides little or no regulation and the state will have virtually no control. Not to mention they will be putting folks out of work and losing the revenue that this industry provides to the state through taxes….

    Mark Johnson – Cash America

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