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Payday lenders should face tougher limits

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Ruth Kolpack & Tom Boswell
February 15, 2010

Payday lenders are a growing scourge in Wisconsin. In 1995, Wisconsin had only two licensed payday lenders. Today their numbers exceed 500. You can find them in nearly every strip mall and shopping center. Lenders charge fees, applied each payday, that translate into an average annual interest rate of 525 percent in Wisconsin!


The Legislature repealed the 18 percent ceiling on interest rates for consumer loans in 1995, opening the floodgates for this predatory industry. Wisconsin is the only state that fails to cap payday loan rates or provide any regulation.


Payday lenders market high-interest, short-term loans to the working poor, those desperate for quick cash, or those lacking access to traditional credit sources. Payday stores typically advance loans up to $1,000, while holding a personal check for the loan amount until the borrower’s next payday. The Department of Financial Institutions warns that it will cost you nearly $200 in interest to borrow $200 for 10 weeks. The Center for Responsible Lending (CRL), an independent research group, reports that 87 percent of borrowers take out new loans the very next pay periods. These “roll-overs” account for 76 percent of the industry’s business. Instead of a short-term solution, hapless borrowers often find themselves trapped in endless spirals of debt.


Sen. Glenn Grothman, R-West Bend, has said of payday lenders: “They’re providing no benefit to society. They are solely bleeding financially illiterate people and taking their money out of state.”


Rep. Gordon Hintz, D-Oshkosh, who has introduced legislation to regulate payday lenders, has said: “Making money on consumer indebtedness should not be a business model for any ethical industry.”


Unfortunately, lots of money is spent to ensure that this unethical industry isn’t properly regulated. Payday lenders contributed a record $140,200 to the governor and legislative candidates—Democrat and Republican—in 2008. More than 30 lobbyists and a public relations firm work to induce legislators not to restrict predatory lenders.


It will take the power of ordinary people to make sure legislators protect the interests of residents rather than the profits of these largely out-of-state loan sharks.


Justice Overcoming Borders has joined with our statewide coalition, WISDOM, the Wisconsin Catholic Conference, AARP and other organizations to push for responsible and ethical lending practices. Join us in asking our state legislators to:


n Cap payday lending interest rates at 36 percent.


n Limit the number of loan roll-overs.


n Establish a database to monitor payday loans.


The latest bill offered by Assembly Democrats fails to cap interest rates on payday loans. Democrats are trying to rush this loophole-ridden bill, which the CRL characterizes as “Swiss cheese,” through the Assembly without a public hearing. A 36 percent interest cap is reasonable. It’s the same limit President Bush and Congress imposed to protect military service members from payday lenders. Wisconsin should do the same to protect its most vulnerable and economically distressed residents. Call your legislators today to demand courageous action against predatory lending. Then contact Justice Overcoming Borders to get more involved in this economic justice campaign.


Ruth Kolpack is president and Tom Boswell is community organizer of Justice Overcoming Borders; phone (608) 882-0758 or (608) 201-5326.

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