Senate passes payday loan regulations, no rate cap..
April, 2010
Nearly two-thirds of Tampa Bay area banks lost money in the third quarter.
The payday loan industry would be regulated for the first time in Wisconsin under a bill that passed the state Senate on Tuesday.
However, there still would be no limit on the interest that could be charged on the loans primarily given to the working poor.
Advocates for the poor, as well as a bipartisan group of state senators, pushed for a 36 percent annual rate cap as a way to stop people from being charged high interest rates and getting trapped in a cycle of debt.
"I don't care if you're a liberal, a conservative, a Republican or a Democrat, this is not right for people," Sen. Mike Ellis, R-Neenah, said at a news conference prior to the debate. "This is a rip off. ... I thought we got rid of the loan sharks when we put Al Capone away."
The Senate rejected the rate cap on a 21-12 vote before voting to pass the bill also on a bipartisan 21-12 vote. In February, the Assembly passed a different version of the bill also without a rate cap.
The two houses must agree on a similar version by April 22 when the session ends if a bill is to pass this year. Gov. Jim Doyle has said he supports regulating the industry.
Payday loans are short-term loans with high interest rates that amount to advances on a borrower's next paycheck. After years of rapid growth with no state regulation on the industry, there were 530 stores in Wisconsin that gave out loans totaling $723 million in 2008.
Supporters say they often are the only source of credit available for many low-income people who need quick cash to pay for unexpected expenses. Critics say the lenders prey on vulnerable people to drive up profits.
"These are designed to be loans that trap people in a cycle of debt," said Linda Ketcham with Madison Urban Ministry. She was among a host of people who spoke out in favor of the rate caps at a news conference prior to the debate, much of which focused on that issue.
The Senate proposal would prohibit payday loan stores from locating within 1,500 feet of one another or 150 feet of residential areas; limits the size of the loans to $1,500 or 35 percent of monthly income, whichever is less; and allows borrowers to roll over their loans just one time.
The Assembly bill limits the loan size to just $600 or 35 percent of biweekly income, whichever is less; prohibits unpaid debts from being rolled over into a new loan; and bans vehicle title loans.
Both bills would allow borrowers to cancel their loans within 24 hours, prohibit lenders from selling consumer information and establish repayment plans for borrowers who default.
Sen. Tim Carpenter, D-Milwaukee, said Wisconsin was the "wild wild west" for the payday loan industry since it has no regulation and the best way to crack down would be through a rate cap.
"I feel its important to stand up for the consumer," he said. "Having basically no regulation on the payday lending industry is basically a scam on consumers."
But bill sponsor Sen. Jim Sullivan, D-Wauwatosa, said his proposal provides enough regulation to reign in the industry while still allowing it to operate for people who need easy access to small loans.
"We are balancing protecting consumers with the need for a market," Sullivan said.
The payday loan industry has been fighting hard against any changes in Wisconsin, spending $669,000 on a lobbying effort last year that included sending 30 lobbyists to the Capitol. Payday lenders also donated $75,000 to state lawmakers' campaign committees last year.
One of the lobbyists, Shanna Wycoff, who works for Cincinnati-based Axcess Financial which owns Check 'n Go, dated Assembly Speaker Mike Sheridan last year. Sheridan admitted to the relationship in January, but said it did not influence any actions he took on the bill.
Last year Sheridan supported a rate cap but he later changed his position and was one of 56 Assembly members who voted against the rate cap in February. Forty-one supported it.
A 36 percent rate cap on interest charged each year would make loans affordable and lead others to compete in that market, said Andy Gehl, an attorney with the Legal Aid Society of Milwaukee.
"Interest rate caps work," he said, noting that caps in place in 15 other states have proven to be effective.
The bill that passed the Senate was "riddled with loopholes and weak provisions that simply won't solve the problem," Gehl said.
Source:Businessweek.com