MADISON, Wis.-Here in the state that is the backyard of the credit union movement, payday lending has blossomed, according to recently released statistics. Wisconsin is one of only 10 states in the country that has no interest rate limit on short-term loans, or what have come to be called payday loans. An investigative report in the Milwaukee Journal Sentinel exposed the severity of the problem: a record 850,000 loans taken out last year for a total of nearly $200 million, representing a 170% increase in only two years. Stephen Meili, director of the non-profit Center for Public Representation's consumer law clinic here said that payday (or cash advance) loans have an annual percentage rate that ranges from 400% to 1,000%. "In a matter of weeks or months, consumers can find that the fees they have paid outstrip the amount of principal they received through the loan in the first place. This consigns them to a state of perpetual indebtedness." One consumer featured in the newspaper's report, Phyllis Blum, who lives in Madison and earns $8 per hour at a full-time job, blames payday loans for her slide into near-bankruptcy. "It's a trap," she said, of the access to easy money at high cost. But when her bills didn't stop and the fees for her first loan kept mounting, she did what many other borrowers do: she "rolled over" the loan. Now she says she can't even afford the $200 fee needed to file for bankruptcy. "Payday lenders are tearing people apart," she said. But Sam Choate, a spokesman for the Check into Cash chain, which operates here, expressed the "Caveat Emptor" (Buyer Beware) operating sensibility that payday lenders offer to blunt criticism of the business. Citing statistics that say the average payday borrower is middle class, Choate said, "Just because you're not rich doesn't mean you're stupid." Their services are needed because other financial institutions, including credit unions, are not providing low-amount and short-term loans, they say. Choate offered the example of another consumer, named Vicky (last name withheld by request) who said she couldn't get a $300 loan anywhere else. Although she paid what she knew was a "horrendous interest rate" she felt she had no other option. John Kundert, acting secretary of the Department of Financial Institutions, which monitors the 30 payday loan companies operating in Wisconsin said they are "meeting a need. They disclose what they charge; their clientele knows that." There are presently some 175 outlets in the state, a tenfold increase in only a three-year period. Attempts to place an interest rate cap on payday loans offered by state Senator Judy Robson (D-Beloit) died in the legislature. After hearings were held, a campaign contribution push resulted in the industry hiring a lobbyist to ward off any planned state controls and $36,000 in contributions to key legislators. Robson was fighting for a 36% cap on loans, but failing that said she would try to negotiate with lenders on an agreed reduction. "We were negotiating with ourselves," Robson said. -
caburger@cutimes.com
