Payday loan limits still undefined

By Patrick Marley
Milwaukee Journal Sentinel
January 19, 2011

Eight months after the Legislature restricted payday loans, state officials have yet to agree who is covered by the law, a situation that critics say could lead to loopholes allowing lenders to escape the regulations.

A legislative committee on Wednesday told the Department of Financial Institutions to rewrite proposed administrative rules governing the new law over concerns the standards include lenders that weren’t meant to fall under the law. Lawmakers said those that make installment loans and some other types of short-term loans were not intended to be subjected to the law governing payday loans.

The new law limits payday loans to a maximum of $1,500; prevents loans from being renewed more than once; bans loans secured by vehicle titles; and restricts where payday lenders can locate. Until the new law, Wisconsin was the only state that did not regulate the loans, which are typically good for two to four weeks with 500% or more in annualized interest charges.

The new restrictions took effect Jan. 1, but the law can’t be fully implemented until administrative rules are adopted.

Opponents of the industry say the rules are crucial because loopholes could be inserted that would allow lenders to continue practices they say trap poor people in debt.

“It doesn’t do us any good if we outlaw or restrict one type of loan only to see it morph into some other product with no restrictions,” said Rep. Gordon Hintz (D-Oshkosh), one of the authors of the payday loan law.

Peter Koneazny, litigation director for the Legal Aid Society of Milwaukee, said he feared the rewritten rules could allow lenders to make auto title loans despite the ban, which was put into place last year when then-Gov. Jim Doyle toughened the law with his partial veto powers.

But Republicans said Democrats should have written a bill with clearer restrictions and questioned how much resolve they had to rein in such lending.

“If this is such an easy fix that could have been done, why wasn’t it done in the beginning? That’s the nagging question,” said Sen. Leah Vukmir (R-Wauwatosa), co-chairwoman of the Joint Committee for Review of Administrative Rules.

Rep. Jim Ott (R-Mequon), the other co-chairman, said he wanted to see the intended regulations put in place.

“I voted for the bill,” he said. “I don’t want to see it gutted.”

The committee asked the administration to limit the changes it makes to the proposed rules, but the Department of Financial Institutions can make any changes it wants.

The proposed rules were written last year by Doyle’s administration. The department now is controlled by Republican Gov. Scott Walker, who has said the new law goes too far.

Sen. Glenn Grothman (R-West Bend), an opponent of payday loans, voted in committee to send the rules back to the department but said he is concerned that they could be watered down because of pressure from lobbyists who tried to stop the bill in the last session.

“I don’t think the new people themselves (at the Department of Financial Institutions) know exactly what they want to happen, but the people in the room know what they want to happen,” Grothman said, referring to the lobbyists who packed a Capitol hearing room.

The committee is expected to take up the reworked rules by the end of February.

With Republicans controlling both houses of the Legislature, the industry has indicated it wants to loosen the regulations.

Democrats ran the Legislature when the law was passed, but they had a tough time reaching consensus and were unable to approve a tougher bill that would have capped interest rates at 36% a year.

Democrats could have finalized the rules late last year, but instead left them for Republicans to handle.

The new law limits loans to $1,500 or 35% of monthly income, whichever is less. Lenders can charge any amount in interest, but interest stops accruing once the loans come due.

Borrowers can renew their loans just once – a change that supporters said was crucial to stopping people from repeatedly rolling over their loans and getting trapped in debt.

The law also bars stores from locating within 1,500 feet of one another and 150 feet of residential areas.


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