Payday lenders are about to be regulated

State Rep. Terry VanAkkeren

During tough times, people often find themselves strapped for cash. And an unexpected expense can throw an already tight budget to the wind, leaving individuals and families with difficult choices. In need of quick cash, some people turn to payday lenders for assistance. Knowing that those asking for a loan are in need of money immediately, the lenders will quickly and gladly approve a loan. But with that loan come fees and triple-digit interest rates. Payday lenders have the ability to take advantage of borrowers, knowing their industry serves as a last resort for those in need. This is predatory lending and, in Wisconsin, it is unregulated. That may all change this session.

Authored by Rep. Gordon Hintz and Sen. Dave Hansen, the Predatory Lending Consumer Protection Act establishes a 36 percent cap on the annual interest rate licensed lenders can charge on a payday loan. (The typical payday loan comes with a 400 percent interest rate.) However, in Wisconsin, the average cost of a two-week payday loan is $20 for every $100, equaling an annual percentage rate of 525 percent! In contrast, the average credit card APR is approximately 13 percent and goes as high as 40 percent.

For those unfamiliar with this particular type of loan, payday loans are short-term, high-interest loans that are advertised as providing quick, easy cash. All you need is proof of income and a checking account to be approved. Paying a loan back on time doesn’t protect a borrower from sky-high interest rates, but the inability to repay a loan more often than not creates a debt trap. Unable to pay, the borrower must “rollover” the loan and face additional fees and even higher interest rates to do so. According to the Center for Responsible Lending, 12 million borrowers – an astounding 62 percent of users – get caught in making five or more payday loan transactions each year, costing American families $4.2 billion.

The Predatory Lending Act is a strong bill that will protect the consumers that payday lenders claim to help. The exorbitant interest rates charged take advantage of people in vulnerable situations, and it’s time Wisconsin starts regulating the payday loan industry.

At a time when other states are strengthening their regulations or banning the practice altogether, Wisconsin has yet to enact any. According to the authors of the bill, 15 states and the District of Columbia either prohibit payday lending or have established two-digit limits on interest rates. In fact, Wisconsin is currently the only state where there is no rate cap for the over 500 licensed payday lenders that operate here.

The 36 percent cap proposed in the Predatory Lending Act is the same rate as enacted by Congress under the Military Lending Act, which came as a response to Pentagon testimony that predatory lending practices against members of the military and their families were undermining military readiness.

Congress may soon take it upon themselves to put a lid on consumer predatory lending, as well. Two bills introduced earlier this year – one in the U.S. Senate and one in the House of Representatives – would place the same 36 percent cap on annual interest rates charged on payday loans nationwide. Measures such as these cost the taxpayer nothing and it is estimated that they would save borrowers $5 billion dollars!

Back here in Wisconsin, the payday lending industry is working diligently, amassing a small army to fight against the Predatory Lending Act. The Predatory Lending Consumer Protection Act has generated incredible support both in and out of the Capitol and across party lines. I am proud to say that I am one of the 43 Assembly members – along with 15 Senators – to cosponsor this legislation. I believe that this bill is the right step towards protecting borrowers and will bring fairness to the payday lending industry.

Contact Me: If you would like to contact me regarding this or any other issue, you may call my office at (888) 529-0026 or you can e-mail me at: Rep.VanAk keren@legis.wi.gov. And, of course, if you want to send me a letter, you can send that to: Rep. Terry Van Akkeren, P.O. Box 8953, Madison, WI 53708-8953.