Column: Lenders give consumers choices
An editorial by WCCC Executive Director George Klaetsch (Published in July 2009)
Over the past few months there has been a recent legislative push for state government to protect Wisconsin consumers from themselves. The proponents of the Payday Lending Consumer Protection Act have eluded that they know more about their constituent’s personal finances and their choices in the financial marketplace than the constituents themselves. This perspective and big-brother approach has put Wisconsin consumers — and more importantly, their personal and private financial choices — directly in big government crosshairs.
Even some newspaper editorial boards have joined the attack on consumer choice. One editorial stated that 28 percent of adults who are unbanked will respond to this government intrusion into personal finances as a “welcome relief.” Others have gone as far as saying that those who use non-traditional lending options, such as payday loans, “lack basic financial literacy” and “know too little about proper financial planning.”
Unfortunately, insulting consumers who have limited financial choices does not help advance any bill in the legislative process.
Even though I disagree with many of their arguments, some editorial boards have made some very accurate and alarming points. The most alarming of those points is that a consumer choice will be significantly reduced or eliminated by this bill. Based on quick research of states that have imposed regulation on the interest rates of payday loans, the Wisconsin Coalition for Consumer Choice has found that legislative passage has effectively eliminated a consumer choice for the underserved and unbanked.
Why is consumer choice important to the underserved and unbanked? The answer is simple: traditional lending institutions have all but ignored this constituency, leaving them with limited choices.
According to a November 9, 2008 New York Times article, “Traditional lenders decline offering small, simple lines of credit to poor and blue-collar customers, leaving them to payday lenders while they push high-limit, high-interest credit cards and subprime loans” to consumers in a higher income bracket.
If traditional lenders are focusing on borrowers who have the means and resources available, where does that leave the 28 million Americans who live life without a bank account or the 50 million Americans who have no credit score? For consumers, it leaves them searching for alternative financial choices, especially in a time of desperate need or emergency.
Further limiting those choices will only aggravate the situation and that is why the WCCC is advocating for more choices, not less.
There are other pertinent issues our elected officials should be directing their efforts towards. Helping their constituents during these tough economic times should be their focus; not eliminating another choice for those most in need.
The WCCC encourages the advocates of the Payday Lending Consumer Protection Act to take proactive and positive steps by introducing legislation that encourages a very important consumer choice: personal savings. Their bill could be modeled after a recent California proposal called Bank on California. This proposal has resulted in the underserved and unbanked with an opportunity to achieve personal savings, not personal debt.
It is our hope that positive ideas and legislative proposals will result in positive consumer choices for all Wisconsinites. I also hope the WCCC can partner with state legislators to advocate and advance consumer choices in these tough economic times.
George A. Klaetsch is the executive director of the Wisconsin Coalition for Consumer Choice.
Mr. Klaetsch’s editorial was published online at the Appleton Post-Crescent, Fond du Lac Reporter, Manitowoc Herald Times Reporter, Oshkosh Northwestern, Sheboygan Press, Stevens Point Journal, Wausau Daily Herald and Wisconsin Rapids Daily Tribune.