MADISON, Wis. – Nationwide states are seeing a continuing increase in the use of payday lenders by consumers, but regulators and consumer groups are not ready to throw in the towel or accept this trend as being irreversible. The push for alternatives is increasing as the demand for payday loans grows. States are seeing payday loan outlets and loan totals soar. Wisconsin, for example, showed a dollar amount increase in payday loans of nearly 18% from 2003 to 2004. Wisconsin Department of Financial Institutions data, as of July 25, shows there are currently 61 payday companies in the state with 407 branches. Twenty percent of the companies are owned in-state. In addition, the average loan amount made by the companies is $337, up from $324 in 2003; the number of payday loans made in 2004 was 1,502,391, a 13.4% increase over 2003; and the total dollar amount of payday loans made in 2004 was $506,621,990, a 17.9% increase over 2003. That trend is mirrored in other states. In Washington state, for example, the Department of Financial Institutions reported that its payday lending industry grew 84% over three years to more than $1 billion in payday loans in 2003. In Mississippi, the number of licensed payday lender locations grew from 878 at the end of 2002 to 1,100 by Aug. 5, 2005. John Allison, Commissioner of the Department of Banking and Consumer Finance, noted that the average amount of each loan has remained at $250 to $270 during those years. The number of transactions and amounts outstanding were 109,000 and $26 million at the end of 2002; 122,000 and $31 million at the end of 2003; and 137,000 and $36 million at the end of 2004. "We recognize that consumers need a better choice," said Jim Drogue, Wisconsin Credit Union League vice president of league operations. "We're trying to identify the issues and are working with Filene Research Institute in Madison on an alternative." Drogue said 34 Wisconsin credit unions, representing 100 offices, have signed on to Filene's REAL Solutions, a collaborative program. "We're hoping that the initiative will be something available to leagues and credit unions across the country so credit unions become the alternative choice to get consumers out of payday lending traps." In addition, several credit unions are also taking action on their own to offer payday lending alternatives. In June, for example, Prospera CU opened a "Good Money" branch in the Goodwill Industries building in Menasha (CU Times, July 13). Prospera CEO Ken Eiden said "Good Money" is a not-for-profit model that provides consumers who might borrow from payday lenders with a lower-cost alternative. Here, loans are $9 per $100 compared with the typical payday lender charges of $22 to $25 per $100. "It's not the cheapest way to borrow, but it provides an alternative model. It puts us at a point to break even when people find themselves in need," he said, adding that just making the loan is not the program's only component. It also includes consumer education and the beyond-recovery point when all Prospera's services are made available to the consumer. Lastly, the fourth component has Prospera partnering with the state Department of Workforce Development to provide individuals seeking a change in their career paths with training for financial services jobs. Suzanne Cowan, director of Wisconsin's Office of Credit Unions, notes that as the credit union regulator, the agency "encourages Wisconsin credit unions to responsibly explore serving this market. We look for well-thought-out plans and we expect the credit unions to appropriately assess the risks and expenses of implementing specialized loan programs to service this market segment." Cowan said there is a consumer demand for small short-term loans that has not been fulfilled by the existing credit union and bank infrastructure. "Payday lenders, check cashers and other alternative financial services providers have capitalized on this and have created a very lucrative business niche. Unfortunately, consumers can easily get caught in a downward spiral when they can't afford to repay the initial loan and have to roll it over for another two weeks for another fee, of course." "In a wider effort, a three-pronged approach is necessary to protect the borrowers that use this type of loan product: competitive alternative products offered by mainstream financial institutions, financial literacy improvement and legislation to control the excesses," said Cowan. "Thanks to the Wisconsin Credit Union League and Filene Institute's REAL Solutions, I think our credit unions have learned that a competitive product is more than just the price. It means they need locations and hours that are convenient to the community and they may need to add bi-lingual staff members." Financial literacy improvement is one of the major initiatives of the entire Department of Financial Institutions. In fact, Gov. Jim Doyle created the Governor's Council for Financial Literacy, a public-private partnership that works together to effectively utilize resources to improve financial literacy in the state. Cathie Tierney of Community First CU, Appleton, is the credit union representative to the council. In other recent efforts, the DFI Office of Financial Education sponsored summer financial literacy training workshops for teachers and DFI worked with Department of Public Instruction to create the model academic standards for financial education that will be put into place in Wisconsin schools this fall. "The third leg of consumer protection is legislation to control the excesses. A bill was passed by the Legislature during the last session but Gov. Doyle vetoed it because it did not provide for a way to enforce even the minimal protections in the bill. The effect of the bill for consumers would have been very slight. The administration and DFI are still interested in legislation that would provide meaningful protection for consumers who do not have access to any other forms of credit," said Cowan. Lois Kitsch, a Filene consultant working with WCUL, said the league's project will run through December. She also has been working with the Maryland and Ohio leagues. Some alternatives are already at work, such as a "bridge loan" collaborative pool to guarantee loss payments. -

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