I can’t tell you how many times I’ve seen people I care about get in trouble with payday lenders. It’s easy to get stuck in the cycle of debt.
People with problems paying their bills turn to a payday lender in an emergency. At first it seems like no big deal; they give you cash today and you give them your paycheck next week. But what happens next week when your car breaks down? How are you going to pay off your loan if you can’t get to work? When you miss a payment, the cycle begins. They charge interest rates so high they should be against the law.
Payday lenders are back in the news this week after a group of consumer protection groups and faith leaders released a report showing the average payday loan is $320 and carries an APR interest rate of 589 percent. That means a typical $320 loan will cost $866 to pay off.
It should be criminal. Their interest rates are so high, they give the mafia’s loan sharks a run for their money!
That’s why I cosponsored my first bill to crack down on the Payday lending industry during my very first year in office. That year, I cosponsored 2003 Assembly Bill 665. The bill would have improved financial literacy amongst loan recipients and increased the required notices payday lenders must provide to the loan recipient. The bill would have also required lenders to provide loan recipients the total cost of the loan before and after it is refinanced, notification that the loan is not intended to meet long-term financial needs and should be used only in the case of an emergency.
In 2003, I also cosponsored Senate Bill 345, which would have helped crack down on skyrocketing loan interest rates. This bill would have capped the interest of a payday loan at 5% of the total amount of the loan. The bill would have also prevented payday loans from being anything less than 30 days and would have required each loan recipient to receive a financial educational brochure produced by the state’s Department of Financial Institutions.
I wasn’t done there. In 2009, I cosponsored Assembly Bill 392, which would have capped the interest rate of a loan at 36%. Sadly, the bill didn’t have enough votes to pass and ultimately failed.
However, I also cosponsored Senate Bill 530, which significantly reshaped our payday loan laws. Until this bill passed, Wisconsin was the only state in the nation that didn’t regulate the industry. It was the Wild West for predatory lenders. The law allows local municipalities to be stricter on where these stores could operate, requires full disclosure of all fees, prohibits interest gathering on the loan after the original due date, bans motor title loans and prevents individuals from having no more than $1,500 or 45% of their total monthly income in payday loans.
Sometimes, we can be our own worst enemy. The bill almost failed when supporters of cracking down on predatory lenders tried to amend SB-530 by also capping interest rates at 36%. In public policy, doing something is often better than doing nothing. That’s why I joined four other Democratic cosponsors of the 36% cap in voting against the poison pill amendment. In the end, we prevailed in passing the first regulation of the payday loan industry in Wisconsin history.
Financially literacy is such an important issue. You can’t teach kids how to read a book and not how to balance a check book.
My daddy told me when I was a little girl that if it sounded too good to be true, it probably was. Next time you see a sign that says, “Get cash today,” just keep walking.