From the Manitowoc Herald Times Reporter (7/19/09)
Wisconsin Assembly Majority Leader Thomas Nelson, D-Kaukauna, minces few words when he calls payday check cashing businesses “legalized loan sharks.”
Nelson and State Rep. Gordon Hintz, D-Oshkosh, continue to trump passage of the Predatory Lending Consumer Protection Act, first introduced in the 2005-07 legislative session. It calls for capping the annual interest rate charged by payday loan, check cashing, auto title or cash advance businesses at 36 percent, the same rate Congress has imposed on such lenders who do business with members of the military.
Fifteen states have adopted the 36 percent cap, and Nelson says it’s the only thing that’s worked to reign in abuses in an industry that preys on society’s most desperate and vulnerable citizens, those who need fast money for one reason or another. Nelson believes it’s a moral, not an economic, issue.
He said the $124 million in interest fees collected by payday lenders in Wisconsin last year could have gone to help pay for groceries, mortgages or college tuitions.
In 2004, $500 million in loans were made by payday lenders in Wisconsin, with 80 percent of that revenue leaving the state because most of the establishments are owned by out-of-state investors.
The payday loan industry is understandably resistant to the Nelson-Hintz legislation. It claims that payday lenders provide a service denied by banks and credit unions to those with bad credit, and that people should have the freedom to obtain the money they need. Its numerous lobbyists — 23 in Wisconsin alone — also argue that its employees will lose jobs and crime will increase if payday loans dry up.
Wisconsin is the only state that does not limit the amount of interest a payday lender can charge, and a typical annual rate can reach 525 percent. If loans can’t be paid back in the usual two-week window allowed, Hintz said, it leads to people being caught in a “debt trap.”
It’s time for the Legislature to pass the Predatory Lending Consumer Protection Act. The business model of payday lenders has to change, or more people will fall victim to practices that benefit only them.