A new bill introduced Wednesday could cap interest rates for payday lending stores with the goal of protecting Wisconsin consumers.
Rep. Gordon Hintz, D-Oshkosh, chair of the Assembly Committee on Consumer Protection, hosted a press conference to present the Predatory Lending Consumer Protection Act to other legislators and the public.
“We realized Wisconsin really doesn’t have any laws that govern [payday loan agencies],” Hintz said. “The biggest problem that we see with how payday loans are done now is there’s no consideration of income.”
If passed, the bill would require loan agencies lending $5,000 or less to obtain a state license. It would also call for a cap on payday loan rates at 36 percent.
Agencies that violate the new regulations would be subject to a $500 maximum in fines and up to six months in jail.
According to Hintz, payday loans are not like business or home loans because payday loan agencies do not evaluate a person’s cost of living or ability to afford the payments.
He added payday loan agencies also give an impractical two-week repayment plan, which most customers cannot fulfill.
Hintz also said payday lenders currently can charge triple digit interest rates on loans, which most people cannot afford to pay off. Those people are often forced to rollover their loan for another period.
This, Hintz said, starts a cycle of debt that escalates quickly and undercuts the economy in the long run.
Hintz added he is ashamed Wisconsin is one of the last states in the nation to take action against payday loan agencies but said the state does have the opportunity to evaluate what other states have done for reform.
“When we decided to move forward with the initiative, it was written from a consumer standpoint,” Hintz said. “Other [states’] reforms that may have been well-intentioned have been circumvented through loopholes and changes in definition.”
Hintz added the uniform cap rate of 36 percent will protect citizens from expensive loans, save them millions of dollars annually, protect against unaffordable repayment terms and reduce the amount of debt consumers accrue.
Mike Mikalsen, spokesperson for Rep. Steve Nass, R-Whitewater, said Nass is very supportive of the bill. Nass would like to deal with the issue unobtrusively, and added implementing a reasonable interest rate would be the least intrusive solution.
According to Mikalsen, the bill faces an uncertain future due to excessive lobbying by payday loan agencies.
“The agencies have no interest in compromising; they are trying to buy friends,” Mikalsen said. “This bill could be derailed not by merits but by influence.”
Mikalsen added most legislators are decent people who will make good decisions, but part of the problem is contributions limit the “give and take” for legislators.
Mikalsen also said the reason the payday loan industry is growing is because of the harsh economy and increased job loss.