Predatory Lending

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MISSION: To end predatory lending and rid Wisconsin of the loan sharks.

This true story shows how predatory lending has been working in Racine County: Kathy emerged from a family crisis with tapped-out friends and family and a low credit score. But she found a safe apartment, held a steady job and attended school in Kenosha. Facing a $700 car repair bill, she turned to Wisconsin Auto Title Loans. For two years she paid $177 a month. When a faith community friend stepped in, Kathy had been fleeced for $4,248 of interest (and still owed the $700)! Had she missed a payment or been late, she’d have lost the car, too.

The Center for Responsible Lending indicates that “lenders collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies.” Auto title loans (like Kathy’s) typically charged 300% interest and a loan not secured by a car charged more than 500% interest. Borrowers typically pay $800 to borrow $300.

Predatory lenders flocked to Wisconsin in 1995 when laws barring interest rates higher than 18 percent were lifted. Today, there’s a payday lender in every mall. According to the Wisconsin Department of Financial Institution, payday lenders made $732 million of loans in 2008.

Predatory lenders will leave Wisconsin when an interest rate cap is restored. That’s what President George W. Bush and the U.S. Congress did in their bipartisan effort to protect our military from predatory lending practices in the 2007 National Defense Authorization Act. They capped interest rates at 36 percent to drive away the loan sharks.

Last year, state Rep. Gordon Hintz from Oshkosh introduced a bill (AB-392) to give all Wisconsin citizens the same protection. Despite many co-sponsors and broad public support for strong reform, legislators backed down to lobbyists and replaced the strong reform our communities need with a weak bill.

The Center for Responsible Lending and the Consumer Federation of America both analyzed the new law. They lamented the lack of an interest rate limit and predicted the industry and its lawyers would find ways around the new rules, as they have done in other states.

Right now, 15 states keep predatory lenders out with interest rate caps, just as Wisconsin used to do. Some claim the votes were not there this year to cap interest rates. That shows how deep a divide there is between Main Street and Madison. Both the Racine County Board (unanimous) and the Burlington City Council supported a 36 percent rate cap.

We insist that Kathy, and everybody else in Wisconsin deserve the same protection that military families get from predatory lenders. So, next spring, we’d like to ask voters in a county wide advisory referendum what they think about restoring an interest rate cap. We predict that voters will support what legislators did not. They will support getting the loan sharks out of our malls.


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