Tuesday, April 11, 2006

Efforts to regulate the growing Wisconsin payday loan industry are going nowhere, and a new proposal in the State Legislature isn’t likely to do anything to break the impasse, reports the Milwaukee Journal-Sentinel.

A State Senate bill, which would cap interest on instant payday loans at 5 percent — instead of the 20 percent typically charged on an initial loan - simply would drive the lenders out of business, according to a payday industry spokeswoman. But that would be just fine with state Sen. Glenn Grothman, a Republican who sponsored the bill.

“They charge outrageous interest rates and they make poor people poorer,” Grothman said.

Interestingly, it looks like that kind of contempt toward payday loan companies by consumer advocates is exactly what’s making a compromise impossible. As a result, Wisconsin is one of the few states that doesn’t regulate payday loans, said state Rep. Jean Hundertmark, a Republican who, last summer, held a public hearing on the issue.

“The industry was willing to make some concessions, the others were not,” Hundertmark said.

Meanwhile, payday loans continue to grow in Wisconsin.

There were 442 payday loan locations in the state at the end of 2005, up more than 12 percent from the 393 totaled in 2004. Already since the start of 2006, at least 10 more outlets have opened. Over the last decade, the number of payday loan locations in Wisconsin has increased almost seven-fold.

In a typical transaction, a borrower writes a postdated check to the lender for the amount of the loan plus a fee. The lender agrees not to cash the check for a short period, usually two weeks, or the borrower’s next payday.

Payday loan proponents say it’s a better alternative than writing a check and having it bounce, which nowadays results in a fee of about $30 in overdraft fees from most banks. But critics argue that payday borrowers take out more than one loan at a time and have difficulty paying them back. Unable to pay a loan back on time, many agree to another fee to extend it. Fees quickly amount to APRs in the triple digits.

Industry spokeswoman Peggy Partenfelder-Moede said that payday advance institutions aren’t against all regulations, such as limits on how many times a borrower can pay an extra fee to delay repaying a loan. However, she said that if it comes down legislation that puts payday lenders out of business, it’s obviously not going anywhere. Previous legislation got as far as Gov. Jim Doyle’s desk in 2004, but it was vetoed by the state’s chief executive, who thought it was too weak.

One of the concerns of the Doyle administration is that, even if lenders agree to limit the number of loans or rollovers a person has, there is no way to enforce limits unless there is a database to track payday loans. The Wisconsin Department of Financial Institutions insists that a payday loan tracking system is needed, and it would be much less expensive than having employees check lending records.

“It’s just to ensure that, with whatever provisions are put in place in the law, you would be able to monitor those through this database. If there were a real-time database, where all of the lenders were connected, they would be able to know right away that Joe Smith has a loan at another location already so you can’t give him this loan,” said Carrie Templeton, executive assistant in the Department of Financial Institutions.

Partenfelder-Moede, who serves as a lobbyist for the Wisconsin Deferred Deposit Association, said a tracking system poses a privacy problem, and that there is no such system for credit card users or any other type of consumer spending.

“How does the average Wisconsin citizen feel about having their financial spending habits tracked?” Partenfelder-Moede said.

Steve Meili, a law professor at the University of Wisconsin-Madison, said it’s possible to run such a system without breaching borrowers’ privacy.

“There is no limitation on interest rates, there is no limitation on the number of rollovers. So it’s one of the worst environments for consumers in the country with respect to payday loans,” Meili said.

Kathryn Crumpton, who manages of the non-profit Consumer Credit Counseling Service of Greater Milwaukee, believes that the new locations that keep opening up proves that payday loan firms fill a niche, no matter what the general public thinks about said niche.

“They’re quick, you don’t have to have good credit. You just have to have a steady source of income and a checking account,” she said. “If you’re desperate, your car’s broken down and you’ve got to get to work the next day, what are you going to do?”

Herself a consumer advocate, Crumpton said people pulling for consumers on the issue are so passionate that they don’t always see the big picture.

This entry was posted on Tuesday, April 11th, 2006 at 2:22 pm and is filed under Wisconsin.