It is, in my opinion, one of Wisconsin's dirtiest not-so-secret truths that we currently have practically no regulations in place for these operations. When "the Legislature in 1995 repealed what was then an 18 percent interest rate cap on consumer loans," the payday loan business took off with a vengeance. Interest rates on these loans can now be as much as 525% (or more) a year. That is, simply put, absurd.
Hintz's legislation would "cap at 36 percent the rate on consumer loans of $5,000 or less," which is also the rate at which recent federal legislation limits loans made to military personnel (and which there is an effort underway to expand to all citizens). Further to this, we should be working to regulate the due dates placed on loans, as all too often borrowers are forced to roll over loans, thus accruing yet more interest, because they can't fully pay off the first one by the time their next paycheck rolls around. That's the ultimate trap.
This sort of regulation seems more than reasonable to me, but of course the lobbyists representing the payday loan industry have been quick to cry foul.
After all, we're talking about preventing them from fleecing the ever living crap out of people in already dire financial straits--which they seem to think is their God-given right to do.
It's because the industry has such deep pockets that legislation of this sort hasn't already been passed. That and lawmakers who are far too prone to being swayed by said deep pockets. They should all be ashamed of themselves. This is preying on the most vulnerable members of our society at some of its worst.
I won't argue that payday loans don't have a place in our society. They clearly serve a need. What we should be doing is encouraging more reputable banks and businesses to offer these sorts of micro-loans, though, as opposed to letting these shady operations run rampant and unregulated.
Take, for example, the credit union programs detailed in the article:
This sort of thing just makes sense. Much like the Kiva model of micro-financing for small business owners in developing countries, we would do well to offer a similar model right here in the good ol' United States. It addresses both the sky-high interest rates that often lead to further financial trouble as opposed to doing any good for those in need, and also begins to point those folks in a better direction for managing their money in the first place.Credit unions are trying to meet the need for small, short-term loans, says Christine Henzig, director of communications for the Wisconsin Credit Union League. A survey last year found that 60 member credit unions offered loans that are, in effect, alternatives to payday loans -- although they are not always marketed that way. And a national initiative assists local credit unions in developing products to help their members improve creditworthiness and build wealth.UW Credit Union in Madison is pleased with the response to its Paycheck Advance program, which lent more than $21,000 in 51 loans to members since its launch in June. Members can borrow up to $500 at 21.75 percent interest and must pay back a minimum $50 each month.
We are few of us financial wizards, and when things get really tough, we often end up feeling like there are no alternatives. That has to change.
We need to realize that this sort of problem effects us all, too. Not only do you never know when the proverbial financial shit might hit the fan for you, but it also behooves us, as a society, to make sure that the most vulnerable among us are not taken advantage of in this way.
I can think of no good reason not to regulate the payday loan business. Ultimately, interest rate caps and regulation of the due dates on loans are just the start of what needs to be done. But they're an important start--crucial, even. We need to hold our representatives accountable to make sure this legislation is well-crafted, with actual teeth, and then passed into law. And soon.
(photo by taberandrew on Flickr)