State Bar of Wisconsin

Public Interest Law Section advocates payday loan interest limits

By Adam Korbitz, Government Relations Coordinator, State Bar of Wisconsin

Oct. 12, 2009 – The State Bar of Wisconsin’s Public Interest Law Section told a joint legislative hearing Wednesday it favors legislation to cap interest rates charged by payday loan operations.

The Assembly Committee on Financial Institutions as well as the Assembly Committee on Consumer Protection heard testimony from both invited speakers and the general public on legislation to regulate payday loan lenders.

Attorney Mary Fons, a consumer rights practitioner and a member of the PILS board, submitted written testimony in favor of Assembly Bill 392, one of the four bills addressed at the joint hearing.

The bill, introduced by Representative Gordon Hintz and Senator Dave Hansen, would cap payday loan interest rates at 36% on an annual percentage rate basis. According to Representative Hintz, the average APR for a payday loan is 542 percent.

In 1996, the Legislature repealed Wisconsin’s 18 percent interest rate cap on all consumer loans when it enacted 1995 Wisconsin Act 328. Since the Legislature repealed the interest rate cap, the number of payday lenders in Wisconsin has skyrocketed from 17 to more than 540.

"Wisconsin is the only state which has no regulation of payday lenders,” Fons told the committees. “Allowing 500 percent to 1000 percent annual percentage rate short-term loans causes far more financial distress than it cures.”

“Providing a quick loan at an extremely high interest rate today with the understanding that by the borrower’s next payday, he or she will be in a sufficiently stabilized financial position to repay that entire loan plus the excessive fee is a faulty model,” Fons continued. “These types of loans provide a life preserver to those drowning, but the life preserver is made of lead.”

“Payday loans cause personal debt to grow exponentially,” Fons added. “The loans create a form of indentured servitude to payday lenders, emotional distress in individuals and families, and contribute to all kinds of instability that result from families suffering from a high debt load.”

“The Public Interest Law Section encourages lawmakers to take the opportunity to close a gap left by the repeal of the usury law in Wisconsin,” Fons concluded. “We have now seen how the market works when predatory lenders are left unregulated.”

According to the bill’s primary sponsor, Representative Hintz, a 36 percent cap is twice the current interest rate limit for federally chartered credit unions. It is also identical to the rate cap Congress enacted in 2007 to protect military service members and their families through the Military Lending Act after reports of widespread abuse of military borrowers by predatory lenders.

According to Hintz, 15 states and the District of Columbia either prohibit payday lending completely or have established two-digit limits on interest rates. Wisconsin is currently the only state with no interest rate cap for licensed lenders.

A wide range of organizations have registered support for the bill, including Legal Action of Wisconsin, Inc., AARP, the League of Women Voters, the Wisconsin chapter of the National Association of Social Workers, the Wisconsin Counties Association, the Wisconsin Council on Children and Families, the Wisconsin Coalition Against Domestic Violence, the AFL-CIO, and both the Wisconsin Catholic Conference and the Lutheran Office for Public Policy in Wisconsin.

Although AB 392 is sponsored by a bipartisan group of 43 Assembly members and 15 Senators, the bill faces an uncertain future in the Democratic-controlled Legislature. One Assembly leader has opined that the bill goes “too far.” In addition, Representative Jason Fields, who chairs the Financial Institutions Committee with jurisdiction over the bill, has said he doesn’t think the bill has enough support to get out of committee.

According to an August report from the Milwaukee Journal Sentinel, payday loan lenders have unleashed a barrage of more than 30 highly paid lobbyists to fight efforts in the Capitol to regulate the industry. In addition, a September report from the Wisconsin Democracy Campaign documented heavy amounts of campaign cash flowing from payday lenders to elected officials in Wisconsin.

The State Bar of Wisconsin establishes and maintains sections for carrying on the work of the association, each within its proper field of study defined in its bylaws. Each section consists of members who voluntarily enroll in the section because of a special interest in the particular field of law to which the section is dedicated.  Section positions are taken on behalf of the section only.

The views expressed on this issue have not been approved by the Board of Governors of the State Bar of Wisconsin and are not the views of the State Bar as a whole. These views are those of the Section alone. If you have questions about this memorandum, please contact Adam Korbitz, Government Relations Coordinator, at akorbitz@wisbar.orgor (608) 250-6140.   

Related articles:

State Bar anticipates busy fall legislative session – September 8, 2009

Rotunda Report is the State Bar of Wisconsin’s Government Relations e-newsletter that highlights legislative, judicial, and administrative developments that impact the legal profession and the justice system. It is published twice a month and is distributed free to attorneys, public officials and others who help shape public policy in Wisconsin. We invite your suggestions to make the Rotunda Report more informative and useful and we encourage you to visit our Web site for the most current information about justice-related issues.

© 2009, State Bar of Wisconsin