Predatory Payday Lending
The Problem
Predatory payday lending is having devastating effects on our communities. It strips consumers of their income and traps them in a never-ending cycle of high-cost debt. Predatory payday loans wreck family finances, stripping American families with 4.2 billion dollars in excessive fees each year. In 2009, Wisconsin consumers paid 168.6 million dollars in payday loan fees. The number of licensed payday lenders in Wisconsin has increased sharply from 346 in 2004 to 530 in 2008 with an average of 3,325 loans per store.
The urgent need to stimulate the economy makes reforming payday lending a priority because it will put more cash back in consumers’ pockets.
Payday lenders profit from repeat borrowers, charging abusive fees and interest rates that surpass 400%. The average borrower pays $800 to borrow $300. Consumers struggle to pay the loan back, fall behind on basic expenses and often seek taxpayer help from social service organizations and publicly funded government programs that provide food and assistance to cover rent and utilities.
There is no cap on payday loan interest rates, or limits on loan fees and the number of times a loan can be rolled over, adding additional fees and charges. The problem for the borrowers—and the payoff for the lenders—is that the terms of these loans are designed to be very difficult to meet. The borrower must keep coming back and renewing their loan because they aren’t allowed to pay it down and can’t afford to pay it off.
Legislative Action Needed
- Cap payday lending interest at a double digit percentage rate
- Limit the number of rollovers on loans to under 10
- Establish a database to monitor all payday loans in the state of Wisconsin
Why?
Predatory lending is an unjust practice that aims to make a profit off of the income of those in desperate and difficult situations. The payday lending model does not teach financial responsibility; rather it creates a financial trap for those that take out these loans. The end of predatory lending in Wisconsin would make way for creative and alternative lending products while promoting responsible lending practices that allow for financial literacy, education, and empowerment.
