Payday lending blossoms in Janesville
Gov. Jim Doyle is expected to soon sign the legislation into law, ending months of debate and discussion that for a while sidetracked the personal life of Assembly Speaker Mike Sheridan of Janesville.
Wisconsin will become the last state to regulate the industry, which left untouched has grown exponentially.
In 1996, the state had 64 payday lenders that made 80,000 loans for about $11 million, according to the state’s Department of Financial Institutions.
In 2008, 542 offices processed 1.6 million loans for $723 million.
The industry has blossomed in Janesville, too.
In 1996, two payday lenders operated here. Today there are 12, and 75 percent of them are concentrated in a 1.2-mile stretch of Milton Avenue. The stretch of road from BudgetLine Cash Advance to Check Into Cash includes six other lenders.
On average, that’s one payday lending store every 264 yards.
The distance between Check ’n Go and LoanMax is about 150 yards. Employees at Janesville Quik Cash and National Cash Advance can wave at each other across Milton Avenue.
Forty yards separate the entrances to EZMoney Payday Loans and SpeedyLoan Corp.
Legislation’s likely effects
Debate lingers on the effect of the new legislation, but one aspect is clear. New payday lenders will be hard pressed to find a slot on Milton Avenue in Janesville.
The new law prohibits payday lenders from locating within 1,500 feet of each other or 150 feet of residential areas.
Grandfather provisions, however, will allow the eight existing stores on Milton Avenue to continue their operations.
Advocates for the poor say the bill did not go far enough because lawmakers declined to impose a cap on the interest rates that lenders charge.
Under the plan, loans would be limited to $1,500 or 35 percent of the applicant’s monthly income, whichever is less. Borrowers could cancel loans within 24 hours and could roll them over only once.
Auto title loans would be limited to one per customer for no more than 50 percent of the car’s value, excluding fees.
“It has been a long and winding road to get to this point, but we stood up to this predatory industry on behalf of Wisconsin’s consumers,” Rep. Gordon Hintz, D-Oshkosh, said shortly after the legislation’s passage in April. “The biggest problem with this industry is that it sets people up to fail by lending more money than can reasonably be paid back.”
J. Michael Collins, faculty director of the Center for Financial Security and a professor at UW-Madison, said he’s not convinced the legislation will mean much.
“I’m doubtful it will have a huge impact,” Collins said. “You can argue about whether that’s a good thing or a bad thing.
“I think all of this might be a little too late to make a significant impact. The industry has been hyper-active and proliferated to the point that we’ve probably already reached the saturation point.”
Loans in default
Plenty of people in Rock County have had trouble repaying the short-term loans. Four of the 12 payday loan stores in Janesville filed 84 small claims cases in 2009.
BudgetLine, for example, filed 46 of them and won judgments that averaged $738 in all but seven of its cases, according to the Rock County Clerk of Courts Office.
One case involved a Janesville woman who signed for a $100 cash advance Nov. 3 and agreed to pay back $122 a little more than a week later. She didn’t pay and lost a judgment for $246.50, the loan amount plus interest and court fees.
Another Janesville woman got a payday loan of $500 on Nov. 28 with the understanding that she would pay the principle plus $110 in interest Dec. 11. She didn’t and has yet to satisfy a total judgment of $734.50.
BudgetLine’s largest case last year involved a 38-year-old Edgerton man who signed for a $1,100 consumer loan Dec. 9. If he’d met his first deadline, the principle and interest would have totaled $1,342.
But he didn’t, instead rolling over the loan three more times and each time adding 22 percent to an amount that reached $2,435 before BudgetLine filed the small claims action. His wages at a Fort Atkinson manufacturer will be garnished until he satisfies the nearly $2,600 judgment.
Interest rate caps
Court records don’t include the specific loan and interest agreements, but it’s apparent BudgetLine charged the three individuals a finance charge of 22 percent.
That’s not an uncommon practice in the industry, which generally requires finance charges of 15 percent to 30 percent on 14-day loans.
In the BudgetLine cases, the finance charge translates into an annual percentage rate of nearly 575 percent.
A representative in BudgetLine’s Janesville office referred a reporter to Cash Choice, the parent company in Atlanta. A call to Atlanta was not returned.
It’s not unheard of in the payday lending industry for annual percentage rates to top 1,000 percent. Online lender Payday-Loan-Yes charges $30 for a $100 loan for four days, the equivalent of an annual rate of more than 2,700 percent.
As the Wisconsin legislation made its way through the Capitol, consumer advocates and others called for an annual percentage rate cap of 36 percent, which didn’t make the final bill
“Wisconsin lawmakers took a stand against payday and auto title lending, reining in an industry that can trap consumers in endless cycles of debt,” said Sheridan, who once favored the cap before changing his mind.
“We have set caps on lending and on rollovers, eliminating the bulk of payday lenders’ profits. I believe that these regulations will protect vulnerable consumers from the most predatory lending practices, and I will be watching to ensure that is their effect in Janesville.”
Collins said the legislation’s ban on rolling over payday loans more than once could help plug the void left by an interest rate cap.
“But it will be interesting to see how the rollover aspect is enforced,” he said. “When people are strapped for cash, they become pretty savvy.”
The industry perspective
The payday loan industry fought regulation, spending $669,000 last year on lobbying. Payday lenders also donated $75,000 to state lawmakers’ campaign committees last year.
Sheridan drew fire in January after acknowledging he dated a lobbyist for the parent company of Check ’n Go, which has a store on Milton Avenue.
On its website, BudgetLine says it has retail stores in Alabama, California, Missouri, Tennessee and Wisconsin. To see the effective rates in each state, the company asks visitors to click on a link that’s been disabled.
But the company does say “payday loan fees typically cost less than the customer’s alternatives.” It suggests that bank and merchant fees can cost three times the interest on a $100 cash advance, a $100 bounced check with $48 in penalties equals an effective annual percentage rate of 1,251 percent, and a $100 credit card balance with a $26 late fee equals an effective annual percentage rate of 678 percent.
“I’m worried that a payday loan will put me into a cycle of debt, and I won’t be able to get out of it” is one question on the company’s list of frequently asked questions.
BudgetLine’s answer: “The vast majority of our customers use payday advance loans responsibly and moderately. Sixty-six percent of our customers use payday advance loans to cover unexpected expenses and financial emergencies.”
Collins of UW-Madison said there are plenty of examples where people have used payday loans responsibly.
“It can certainly be a useful tool,” he said. “It can also be a tool that causes real problems for people.
“If nothing else, maybe this legislation will get people to think more about what they’re doing. But the problem is that people are cash-strapped, and it’s pretty tough to legislate against that.”