The days that some legislators have termed the “Wild West” of unregulated payday lending in Wisconsin may be numbered, so long as the Senate and Assembly can reach a compromise on the issue before the end of legislative session.
The Senate is expected to pass a bill next week regulating the payday lending industry, and the Assembly already passed its own bill on the issue in February. However, while the two bills are similar, they are not identical.
April 22 marks the end of session, by which point the two chambers must strike a deal for Gov. Jim Doyle to sign a bill into law or the issue dies until next year.
Payday loans are short-term, unsecured loans for small amounts borrowers promise to repay out of their next paycheck. Wisconsin is currently the only state that does not regulate payday lending.
“The industry does serve a market need, perhaps offering a lifeline to a family that is up against the wall financially,” bill author Sen. Jim Sullivan, D-Wauwatosa, said during a public hearing in March. “Even though it does serve a market need, this does not mean that we as a state can look away from abusive practices and allow them to continue.”
The Senate bill would limit loans to $1,500 and restrict payday lenders from setting up shop within 1,500 feet of each other or 150 feet of residential areas. It would also restrict borrowers from rolling over loans more than once, a practice many claim keeps borrowers in a cycle of debt.
The Assembly bill limits loans to $600, prohibits any rollover of loans and bans auto title loans. The Senate bill does not regulate auto loans.
One divisive issue in the debate over payday lending regulation remains unresolved: The interest rate cap.
The cost of borrowing, or “annual percentage rate,” for a payday loan is often so high that borrowers spend most of their money repaying APRs without repaying the principle loan itself.
An amendment capping interest rates at 36 percent failed in the Assembly, and the Senate bill does not include an interest rate cap. It is not yet clear if support of a cap is strong enough in the Senate to be amended into the bill, despite the plans of a bipartisan alliance of senators to push for a cap of 36 percent.
A growing coalition of interest groups opposes the Senate bill due to its lack of an interest rate cap.
“Consumers in Wisconsin deserve the same protections that consumers in other states have,” Bruce Speight, director of the Wisconsin Public Interest Research Group, said in a statement. “Trapping borrowers in debt and gouging them with predatory loan products is unacceptable in Wisconsin and a rate cap should be put in place for Wisconsin consumers,? he said.
The payday lending industry spent $75,000 on political campaigns in Wisconsin last year to ensure that Wisconsin law does not infringe on payday business, a record amount for a non-election year, according to a report from the Wisconsin Democracy Campaign.
