States Landing Hard on Payday Loan Industry, But Wisconsin Won’t Cap Interest Rates (w/Update)
UPDATE (6:50 p.m.): The Wisconsin State Senate passed the payday lending reform bill, Senate Bill 530, regulating payday lending for the first time in Wisconsin this afternoon. As expected, amendments instigated by members of both political parties to cap payday loan interest rates were stripped from the final draft. Despite pleas from advocacy groups for the poor that they would rather the bill be voted down than have it approved in its current form, the bill passed by a 21 to 12 margin.
Both the Assembly and the Senate must come to a consensus about what will constitute the final bill that they will send to Governor Doyle before the legislative session ends. Wisconsin had been the only state in the Union with an unregulated payday loan industry.Vodpod videos no longer available.
I once used to do business with a couple of payday loan companies. Not anymore. I learned my lesson the hard way not to use their services. They are nothing less than legal loan sharks for people with little or no credit, but without the torpedoes and the mere intimidation of brass knuckles or gats on the table if they don’t get paid. It’s best to do without them, and in fact, several states–Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, West Virginia–have outlawed payday loans. Why? Because it usually happens this way:
One […] client said, “You get a payday loan and you take your pay next payday and pay back the loan. Then you don’t have enough money to last to the next payday, so you go back. If you don’t pay the loan, they call everybody from your employer to your sister.”
And worse: they take any money desposited in your bank account. And that money could be for your rent.
This week, Wisconsin is about to combine two bills from the State Senate and the State Assembly that will regulate the industry in the state, but unfortunately, the state lawmakers won’t clamp down on the most important aspect of payday loans: the fees. Why? As the O’Jays’ sang, “Money, money, money, mon-ey. Money.”
Payday lenders say they are providing an important service, especially in a dreadful economy where people are short on cash. Detractors say the industry preys on desperate people with annual interest rates that routinely exceed 400 percent.
“It’s sort of like a twisted person that’s standing on the street corner offering a child candy,” Smith said. “He’s not grabbing the child and throwing him into a van, but he’s offering something the child needs at that moment.”
Payday loans are short-term, high-interest loans that are effectively advances on a borrower’s next paycheck.
For example, a person who needs a quick $300 but doesn’t get paid for two weeks can get a loan to help pay the bills, writing a postdated check that the store agrees not to cash until payday. The borrower would have to pay $53 in finance charges for a $300, two-week loan in Arizona – an annual interest rate of 459 percent.
And don’t think that payday loans are just in the United States. They’re located in Australia, Canada, and the United Kingdom. (Canada, though, considers any interest above 60% as criminal usury. The fees are now capped at 23%.) Plus they are online. So there are people all over feeling the hurt from these companies, especially when the industry is unregulated and allowed to run wild as it has in Wisconsin.
It used to be that banks would give out short-term loans, but that no longer became lucrative for them some thirty years ago. Short term loans were then given over to finance companies, the traditional haven for those with little or no credit. Now they’ve become the province of the payday loan industry, which evolved from check cashing companies. Some of whom are owned by those same banks who wouldn’t give customers the time of day. They even offer advances for current bank customers to cover overdrafts with a fee.
So why isn’t Wisconsin clamping down on fees? Probably because of the payday the industry and its lobbyists have given Democratic Party members in the state, switching up their tactics from the Republicans when they lost control of the State Legislature in 2008.
Payday lending representatives put nearly $75,000 in political coffers last year as they tried to fend off efforts to regulate their industry, a record for a nonelection year.
The industry also shifted the focus of its giving from Republicans, whom it traditionally backed, to Democrats, who took over the state Legislature last year, according to the report from the Wisconsin Democracy Campaign. The group lobbies for limiting special-interest money in campaigns.
Wisconsin is the only state that does not regulate payday loans, which can cost borrowers 500% or more in interest per year.
Most of the campaign money went toward campaign committees controlled by legislative leaders.
Among individuals, Democratic Gov. Jim Doyle received the most, collecting $8,120. He has called on lawmakers to pass the toughest bill they can.
Sen. Jim Sullivan (D-Wauwatosa) and Sen. Pat Kreitlow (D-Chippewa Falls) each received $2,500, the most among legislators. Sullivan is chairman of the Senate Financial Institutions Committee and lead sponsor of a bill to cap loans at $900, bar people from renewing loans more than once and limiting where the lenders can locate.
On top of it, earlier this year, State Assembly Speaker Mike Sheridan (D-Janesville), who was undergoing a divorce, was found to be sleeping around with a payday loan industry lobbyist, Shanna Wycoff, early 30s, who represented Cincinnati-based Axcess Financial, which operates Check ‘n Go. The word “date” doesn’t even begin to dress this up. That’s how low they go these days, whether Democrat or Republican. The result was that Sheridan literally sold out his constituents for this delilah by watering down the Assembly bill. He’ll insist to his dying day that he was beginning to moderate his views anyway, but look for Sheridan to lose his seat in the next election go-round, and I and a lot of other people would be glad to see that happen. (He may not run again, since he had moved out of his own district at the time the scandal was uncovered.) Disappointment like this is hard for people–be they Democrats or Republicans–to swallow for long. As the Capitol Times put it ever so succinctly:
Any legislator who takes the side of this industry has lost credibility as a representative of the people — and that goes double for a representative from Janesville, a community that, because it has been so hard hit by the current economic downturn, has many citizens who are vulnerable to the payday predators.
Sheridan has been a lousy leader in the fight over regulating the payday loan industry. He has changed his position from one that was tough on the industry to one that is soft on the industry. Even now, he is sending mixed signals about cracking down on these vultures.
The speaker has made himself a laughingstock. And he is doing severe harm to his party’s credibility in what is likely to be a tough election year. He is failing to lead on an important issue.
Whatever Sheridan decides, his ass is cooked. Leadership be damned.
So, Wisconsinites, don’t expect miracles when the final product of this bill to regulate the payday loan industry goes through. Our elected representatives that we expected to protect our flanks and give some of us a break during the Great Recession just took their money–or nooky–and ran. If anything, think of this as round one, rest up and get back in fighting form, and come back for more later.