To The Wisconsin Legislature:
I understand a bill is to be introduced limiting payday loans to an annualized interest rate of 36% APR. Due to the average default rate of 6% and average monthly store overhead of $8000, it is impossible for a payday lender to stay in business without receiving at least $15 in revenue for every $100 borrowed. The financial statements of publicly held companies operating in Wisconsin bear this out.
What you may not realize, based on statements by some of your members, is that this will harm the very consumers the bill purports to protect.
People who need short-term credit do not have a lot of options. Those options are:
A) Borrow from friend/relative/employer
Risk: Complication of important relationship, embarrassment
B) Credit Card Cash Advance – â€¨
Cost: About $1 per hundred every two weeksâ€¨
Risk: Fail to pay; credit rating is damaged
C) Pawn somethingâ€¨
Cost: $9.50 per hundred every two weeksâ€¨
Risk: Fail to pay, you lose the personal item.
D) Payday Loanâ€¨
Cost: Averages $16 per hundred every two weeksâ€¨
Risk: A collection agent tries to recover what’s owed; no damage to credit rating; no personal item at risk; no personal relationship at stake. â€¨
Myth: “Cycle of Debt” – 94% of loans are paid back on time — that statistic is available in every single SEC filing of all public companies.
E) Online Payday Loan
Cost: $25 â€“ 30 per hundred borrowed every two weeks
Risk: Same as regular payday loan, but industry is unregulated and identity theft is easier.
F) Bounce a checkâ€¨
Cost: Averages $45 per hundred borrowedâ€¨
Risk: As soon as you bounce one check, you risk creating a domino effect, causing other checks to bounce and running those fees even higher.
Wisconsin residents are not stupid. They know a bargain when they see it. Thatâ€™s why 25,000 payday loan storefronts exist in America. Thatâ€™s why millions of American use it as an option. Thatâ€™s why opponents never, ever bring up the fact that the number of complaints about payday lenders are miniscule.â€¨They also never, ever bring up the fact that 94% of loans are paid back on time.
Donâ€™t believe me? Open up the annual reports of any public payday lender.
The FDIC said a lot more in their November study of bank overdraft programs. In 2007, payday lenders provided 154 million loan transactions and collected $6.8 billion in fees.
But that same year, bank and credit union accounts were overdrawn by consumers 1.22 BILLION times, generating $35 BILLION in fees.
This bill will force consumers into choices they have already dismissed as being impractical, too risky, or too expensive.
Do not be fooled: credit unions cannot fill the gap that will be created, nor will they be able to offer loans at 36% APR. If that were the case, then hoards of competitors would be in business at 36% APR, and they arenâ€™t. Furthermore, not everyone is a member of a credit union and, as noted above, credit unions are just as nasty as banks in dinging customers for overdraft fees.
Even worse, at least 1,000 people will be thrown out of a job during the worst recession in 80 years.
Tax revenue lost from these businesses will widen the stateâ€™s budget deficit.
There is a wide middle ground between leaving the product unregulated and banning it â€“ a very wide middle ground. Cap rates at $17.50 per hundred borrowed. Require a payment plan for those unable to pay back in full. Limit the number of loans permitted at any time to three. Limit renewals. Most importantly, institute a required course for senior year of high school that focuses on personal finance.
These are sensible reforms that will provide proper protections for consumers without removing their most important credit option.
Choice. Freedom. Thatâ€™s America.
Do not take away the choice of free Americans to do as they wish.
Why not let people who need a loan get a loan? If they donâ€™t like the price theyâ€™re paying, they wonâ€™t take it out.
Why take away 1,000 jobs in a recession?
Why force people who need credit to pay MORE than what they pay now?
If you pass this bill, youâ€™ll be showing an awful lot of people that you donâ€™t care about the facts, and you donâ€™t care about them.
Why would you do that?
If you would care to discuss this issue, Iâ€™d be delighted. Just contact me at firstname.lastname@example.org