Sunday, May 21, 2006

Looking around the 12th District, Alderman Aron Wisneski said he and his neighbors have noticed a proliferation in west Racine of a certain type of business - payday loan stores.

"We all started to remark how these places were popping up like mushrooms in the rain," Wisneski told the Milwauke Journal Sentinel.

Meanwhile, Ald. Greg Helding, representing the 11th District, was concerned about what he was hearing was happening to some people who use bad credit payday loans in general.

"I talked to one person whose sister was basically ruined by such establishments," Helding said.

The two aldermen decided to try to do something about it. Their first step was to propose a 90-day moratorium on any new quick cash loan businesses. The proposal won unanimous support from the Common Council last week.

A study by the state Department of Financial Institutions found there were about a dozen payday loan stores in the entire state in 1995; by 2005, there were more than 400.

In Racine, there are about a dozen payday loan stores, several within blocks of each other. Helding said he is concerned that these businesses are taking advantage of people who are already struggling financially by charging exorbitant interest rates.

"In areas that already may be economically depressed, people may feel they have no other place to turn, then they end up getting roped in and getting into trouble, and they are not able to pay rent, or for other important things like utilities, food or clothing," Helding said.

Those who want to restrict payday loan businesses likely have never been in such need and fail to recognize the tremendous need for such services, said Lyndsey Medsker, spokeswoman for the Community Financial Services Association, the national trade association representing payday lenders.

Forced to choose between payday loans
"I know of no traditional bank that will loan $200," Medsker said.

She said people are forced to make choices: They could write a bad check and risk a $35 fee, pay $35 for their bank's overdraft service, or not pay a bill and incur a late fee. Another option is to borrow $200 via payday loans, pay a fee that is typically $15 per $100 borrowed, and pay it back in two weeks.

Restricting brick-and-mortar businesses will only force people to go to unregulated payday loan services online, she added.

Zoning restrictions next?
Both Helding and Wisneski dismiss the criticism that the moratorium - and what will likely be tighter restrictions on payday loan businesses - will interfere with the free-enterprise system.

"We do see these businesses as fundamentally different from other businesses," Wisneski said. "It's in the community's best interest to pay attention to what businesses come in … In the case of payday loan businesses, we believe (those) businesses are doing a net disservice to Racine."

During the moratorium, Helding and Wisneski will be looking at what other communities have done to stop more payday loan stores from operating and to address some of the reasons there is a need for such services, they said. In Arizona, for example, there are zoning laws in place for payday advance locations.

Placing a requirement of at least 2,500 feet on payday loan establishments in one ideal the pair is contemplating.

This entry was posted on Sunday, May 21st, 2006 at 12:11 pm and is filed under Wisconsin.