Guest column: Payday loans a needed service

From the Manitowoc Herald Times Reporter (7/30/09)
By Erin Krueger

The Wisconsin Deferred Deposit Association (WDDA) is a statewide trade association representing the short-term lending (payday advance) industry in Wisconsin. It strives to promote laws and regulations that protect consumers while preserving access to credit options.

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That’s why we feel the Manitowoc Herald Times Reporter editorial (“Time to Halt Payday Loan Abuses,” July 19) in support of Rep. Hintz’s proposed Predatory Lending Consumer Protection Act is misguided, as the law will only hurt the very consumers it seeks to protect.

Placing a 36-percent fee cap on the short-term loan industry will take away a worthy consumer choice, as lenders would no longer be able to provide financial services to consumers in tight monetary situations.

A study by Federal Reserve Bank of New York Research Officer Donald P. Morgan concludes that the elimination of payday loans results in increased credit problems for consumers. This is because consumers would have to choose between bouncing a check or overdraft protection, incurring late fees on routine bill payments, borrowing from friends or family or taking out a cash advance on a credit card. All of these products have a cost associated with them.

Regulated short-term loans help hard-working individuals meet unforeseen expenses and manage short-term financial difficulties. A short-term loan is sometimes the only financial option for a consumer, especially since banks and credit unions generally do not provide loans of less than $500.

The most grievous of Rep. Hintz’s claims is that Wisconsin is the only state without an interest rate cap on short-term loans. According to the National Council on State Legislatures, which is the organization representing all state legislators in the nation (including Rep. Hintz), several states such as Nevada, Utah, Idaho and South Dakota do not have an interest-rate cap for short-term loan companies.

The editorial highlights Rep. Hintz’s claim that short-term loan companies’ typical annual rate can reach 525 percent. In actuality, the typical fee charged by short-term loan companies is $20 per $100 borrowed, or a simple 20 percent for a two-week duration. When you hear statements regarding an inflated annual percentage rate, you must remember that this would only occur if the two-week loan was rolled over 26 times, which never happens.

Meanwhile, here are the APRs for other credit options:

  • $100 bounced check with $54 NSF/merchant fees = 1,409 percent APR
  • $100 credit card balance with a $37 late fee = 965 percent APR
  • $100 utility bill with $46 late/reconnect fees = 1,203 percent APRThe Predatory Lending Consumer Protection Act would not only eliminate credit options, it would also cause unemployment and cost the state millions. As mentioned, the proposed cap would put short-term loan companies out of business. Consequently, more than 1,000 Wisconsin jobs would be eliminated and unemployment costs each year to the State of Wisconsin would be $23,142,600.

    WDDA is disappointed the Herald Times jumped on board with Hintz’s proposed legislation before checking the facts. The Predatory Lending Consumer Protection Act simply doesn’t protect consumers.

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    One response to “Guest column: Payday loans a needed service

    1. hey, thanks for sharing it here. keep it up

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