If you listen to the opponents of payday loans, you’d think that these companies were conceived in Hell and that their employees are the spawn of Satan himself. These voices are often loud, and it’s a pretty regular thing that they get heard by folks in state and federal government. Arizona’s Attorney General, for example, has gone after payday lenders on many occasions. There are other states, such as Illinois, that have passed a number of different measures aimed at shutting down payday lenders.
Wisconsin has recently passed legislation that is designed to combat the high interest loans provided by payday lenders. Proponents of the legislation argue that the high interest rates take advantage of the working poor, and that the rates are predatory.
Opponents of the legislation make their case based on free enterprise. They argue that there is a demand for short-term, low value loans in the marketplace, and that the only way for a company to make a short-term low value loan profitable is to charge what winds up being a high interest rate. They argue that the fees associated with a payday loan are relatively small when compared with fees for things like overdraft protection from a bank or a bounced check fee.
Unfortunately, there is speculation that this legislation won’t really solve the problem, and that the working poor will still be vulnerable to high-interest loans.
The problem with the legislation is that it doesn’t actually include any rate caps. Instead of limiting the fees that the lender can charge, it limits the amount that the borrower can borrow. The legislation caps the size of a payday loan at $1,500 or the equivalent of 35 percent of the family’s monthly income, whichever is lower. It would also allow borrowers to roll over their loan once.
The legislation also tries to reduce the number of payday loan businesses, as well as limit their locations. A payday lender would not be able to operate within 150 feet of a residential area, or within 1500 feet of another payday lender.
Up to this point, Wisconsin has been the only state to not put some regulation or another on their payday lenders. This particular legislation opens that door, although it does it in such a way that it may not have much of a beneficial impact on the folks who are taking out these loans to begin with.…