Most finance industry insiders would agree that tighter guidelines and restrictions is on the way for payday loans. Auto title loans would be banned, payday loans would be limited to $600 and pay day lenders could not roll over a borrower’s debt into a new, larger loan under an Assembly bill unveiled Tuesday. Democrats who control the chamber described the payday loan plan as a compromise that will outlaw the payday lending industry’s most abusive practices while preserving a source of credit for the most desperate borrowers.
At a testy Capitol news conference, Democratic lawmakers acknowledged that Assembly Speaker Mike Sheridan’s recent admission of a romantic relationship with an industry lobbyist was a distraction. But they insisted Sheridan, who skipped the press conference, had not been involved in details of the legislation and lashed out at the news media for focusing on his personal life. If anything, Rep. Josh Zepnick said, the attention resulted in a stronger bill after months of infighting among Democrats. ”In spite of all the news and the things you’ve been hearing, we busted our butts on this bill,” said Rep. Jason Fields, D-Milwaukee. ”It’s a little disrespectful to me to think that, despite the current drama, we didn’t work hard on this.”
Sponsors said they believed the plan would soon pass the Assembly, but Fields acknowledged changes were likely as negotiations with Senate Democrats continue. Time is running out for a bill to pass both chambers and be signed into law by Gov. Jim Doyle this session. Payday loans are cash advances with extremely high interest rates that amount to advances on a borrower’s next paycheck. Supporters say they are often the only source of credit available for many low-income people who need quick cash to pay for unexpected expenses.
After years of no regulation in Wisconsin, the industry has enjoyed rapid growth. In 2008, there were 530 stores in Wisconsin that gave out 1.2 million loans totaling $723 million, lawmakers say. The plan would not cap the annual interest rate that lenders could charge on loans, unlike a previous bill that would have limited them to 36 %. Rep. Donna Seidel, D-Wausau, said the cap would have gone too far in choking off credit for borrowers struggling in the economic downturn by essentially wiping out the industry. But she and others said the bill contained strong consumer protections. The plan would ban payday lenders from giving consumer loans that are guaranteed by their personal vehicles, which can be seized if they do not pay them off.
Payday loans and cash advances would be limited to $600 or 35 % of a borrower’s two-week income, whichever is less. The $600 cap would also include the interest that could be charged. Borrowers could only take out one loan at a time and lenders would be prohibited from giving a loan to anyone with an outstanding balance on another loan. Each transaction would be entered into a computer database overseen by state financial regulators and funded by a charge of up to $1 per loan.
Most importantly, lawmakers said, the bill would ban lenders from ”rolling over” a customer’s outstanding debt into a new, larger loan, a practice that critics say traps the poor in a crushing debt cycle. A majority of the industry’s profits comes from rollovers, Seidel said. Lawmakers refused to say whether they believed Sheridan, a Janesville Democrat, had been forthright with them about his relationship with Shanna Wycoff, who was part of the lobbying blitz against the rate cap. She works for Cincinnati-based Axcess Financial, which owns the payday lending chain Check ‘n Go.
Sheridan supported a rate cap proposal in a previous session, but he switched his position last year. He referred the rate cap bill to the financial institutions committee chaired by Fields, an opponent of the cap, and the plan died. Fields, Seidel and others were part of a group that spent months crafting the compromise unveiled Tuesday. Rep. Gordon Hintz, D-Oshkosh, the sponsor of the rate cap, said that would have been a stiffer consumer protection but he called Tuesday’s compromise necessary reform.
