Wisconsin Gov. Doyle Vetoes Payday Lending Bill for Not Having Enough Teeth

MADISON, Wis. – A Wisconsin bill to strengthen laws regulating payday loans “does not go far enough” to protect Wisconsin consumers, Gov. Jim Doyle noted in his April 15 veto of Assembly Bill 665. “The provisions of this bill do little to change the current practices of payday lenders or to improve on current consumer protection laws. Consumers who turn to payday lenders in times of financial need are often vulnerable and not in a position to fully consider the terms of the agreement in the few minutes it takes to process these transactions. Current law already limits fees and interest paid on consumer loans for which principal is returned within one day,” Gov. Doyle said in explaining his decision. Brett Thompson, CEO and president of the Wisconsin Credit Union League, says that while the league “did not have an official position on the bill, we did testify at hearings that credit unions are an alternative to payday lenders.” Thompson said that the league expects to be involved “as we go forward for further debate on the issue.” He said the WCUL wants to make sure the public understands that credit unions could be an alternative to check cashers and payday lenders. According to Doyle, too often payday loans come at a very high price to those who can least afford to pay it. A study by Wisconsin’s Department of Financial Institutions (DFI) showed that 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 his veto message, Doyle noted that the department’s authority has already been interpreted to protect payday loan recipients from prosecution under worthless check statutes. He said that without a means of tracking payday loans, provisions limiting the number of consecutive transactions will be unenforceable. The bill would have modified provisions relating to consumer loans commonly referred to as payday loans. Specifically, it would have: * required a payday lender before disbursing funds to provide notice that compares the cost of the loan if paid in full to the cost if refinanced three times; * required the lender to notify the loan recipient that a payday loan is not intended for long-term financial needs, that it should be used only for financial emergencies and that consecutive payday loans will require additional interest and can cause financial hardship; * required payday lenders to inform a payday loan recipient that he/she would have no obligation to pay interest or fees if the loan principal is returned by the close of business the day after disbursement of funds; * limited payday loans to four consecutive transactions, terms not to exceed 35 days and a disbursement not to exceed $5,000. The $5,000 limitation on a payday loan would have been adjusted annually for inflation under rules to be promulgated by the DFI. * prohibited a payday lender from initiating or threatening to initiate criminal prosecution for failure of a recipient’s check or electronic transfer to be paid by the financial institution from which it was drawn. Doyle urged the Legislature to work with his administration and other concerned groups to draft legislation that will make real changes in the regulation of payday lending and that will ensure the protection of Wisconsin consumers. “In 2003, Wisconsin’s payday consumers paid nearly $85 million in payday lending fees, and more than 90 percent of those fees went directly to out-of-state companies. This industry has a huge economic impact on our communities and we need to seriously address this issue,” he stated. Kathryn Carlson, executive assistant for the Wisconsin DFI, said A.B.665 did not even offer a minimum combination of requirements the agency would like to see, noting that in a review of other states’ legislation, Florida and Indiana payday loan laws were good models. While noting that it is not all or nothing, Carlson said some discussion points for future legislation might include: * A rollover limit. “It needs an enforcement mechanism behind it, a database, so it can be determined if a person has too many rollovers or doesn’t. In the absence of that database, a payment plan provision could insure that after four rollovers, the lender would have to put the consumer into a payment plan to start paying down the principal,” Carlson explained. * Possible limits on fees charged. * A higher minimum term. She said the bill gave a “fuzzy” idea of payday loans as being between three and 31 days. * A smaller maximum amount. “The average across the states is $550. The bill’s was $5,000.” Carlson said 29 states have a maximum under $1000 with 26 of those states including all states bordering Wisconsin having capped amounts of $500 or less. * Some discussion on the number of concurrent loans or the maximum amount out at one time. Carlson said the bill’s “net effect on consumers would have been minimal. It would not have changed the current climate at all. Payday lenders still fall under the Wisconsin Consumer Act and still are regulated.”