It's been said that a sign of how poorly a community is doing economically is to count the number of payday loan businesses. The more there are, the worse off the community is.
That's because payday lenders cater to people who are at some stage of financial distress. And Wisconsin is the only state in the nation that doesn't cap interest rates on the loans.
That, hopefully, is about to change. Rep. Gordon Hintz, D-Oshkosh, has authored a bill that would cap the interest rates on payday loans at 36 percent. It's better than no cap, of course, but it doesn't go far enough.
The state's lack of regulation allows short-term lenders to charge exorbitant interest rates if loans are not paid on time. Aside from the extreme interest rates, borrowers also can use vehicles or other property as collateral. So the loss can be more than just a revolving debt spiral, people can lose property or modes of transportation.
A 36 percent interest rate still is incredibly high, especially when the interest rate for some borrowers on a low-quality used car is only about 10 percent. Payday lenders exist to make money off people who in most cases shouldn't be borrowing in the first place. In some states, the businesses aren't allowed at all.
According to a statement issued by Hintz's office, the rise of payday lending came after the state repealed a law that capped loan interest rates at 18 percent. The Legislature changed the law in 1995 to allow the state's financial institutions to be more competitive. Why not go back to that level?
After the law was stricken, "Wisconsin had 17 payday lenders; today there are more than 542," according to Hintz.
A quick search of the Yellow Pages shows there are more payday lenders in Monroe than dry cleaners. Something is wrong with that, and in some communities in the state, like Wisconsin Rapids, there are more payday lenders than grocery stores.
There are some individuals who can use short-term loans effectively, but from the many horror stories told of the traumatic ramifications of spiraling debt, it's evident far too many can't control the urge to borrow when they shouldn't.
Hintz's statement also cited a study by the Wisconsin Department of Financial Institutions, which reported the average annual percentage rate for a payday loan is 542 percent, while the average annual net income of payday borrowers is less than $19,000 and that more than half of the loans analyzed were refinanced. In 2005, Wisconsin consumers paid an estimated $124 million in fees.
This industry needs to be controlled now before anyone else makes a financial choice they can't afford, but the regulations must be more severe than what is being proposed.
That's because payday lenders cater to people who are at some stage of financial distress. And Wisconsin is the only state in the nation that doesn't cap interest rates on the loans.
That, hopefully, is about to change. Rep. Gordon Hintz, D-Oshkosh, has authored a bill that would cap the interest rates on payday loans at 36 percent. It's better than no cap, of course, but it doesn't go far enough.
The state's lack of regulation allows short-term lenders to charge exorbitant interest rates if loans are not paid on time. Aside from the extreme interest rates, borrowers also can use vehicles or other property as collateral. So the loss can be more than just a revolving debt spiral, people can lose property or modes of transportation.
A 36 percent interest rate still is incredibly high, especially when the interest rate for some borrowers on a low-quality used car is only about 10 percent. Payday lenders exist to make money off people who in most cases shouldn't be borrowing in the first place. In some states, the businesses aren't allowed at all.
According to a statement issued by Hintz's office, the rise of payday lending came after the state repealed a law that capped loan interest rates at 18 percent. The Legislature changed the law in 1995 to allow the state's financial institutions to be more competitive. Why not go back to that level?
After the law was stricken, "Wisconsin had 17 payday lenders; today there are more than 542," according to Hintz.
A quick search of the Yellow Pages shows there are more payday lenders in Monroe than dry cleaners. Something is wrong with that, and in some communities in the state, like Wisconsin Rapids, there are more payday lenders than grocery stores.
There are some individuals who can use short-term loans effectively, but from the many horror stories told of the traumatic ramifications of spiraling debt, it's evident far too many can't control the urge to borrow when they shouldn't.
Hintz's statement also cited a study by the Wisconsin Department of Financial Institutions, which reported the average annual percentage rate for a payday loan is 542 percent, while the average annual net income of payday borrowers is less than $19,000 and that more than half of the loans analyzed were refinanced. In 2005, Wisconsin consumers paid an estimated $124 million in fees.
This industry needs to be controlled now before anyone else makes a financial choice they can't afford, but the regulations must be more severe than what is being proposed.
