A 2009 legislative battle royal is shaping up in Wisconsin, one of the last states without an interest rate limit that payday and title loan lenders can charge to their high-risk borrowers.
On May 28, state Rep. Gordon Hintz, D-Oshkosh, re-introduced essentially the same bill that died without floor votes during the 2007 and 2008 legislative sessions. The fate of those bills is testament to the political muscle of payday lenders in Madison.
The industry has exploded in Wisconsin over the past decade to more than 500 registered payday lending outlets around the state, from just 64 in 1996. There are seven payday and title loan stores in Superior, 12 in Oshkosh. Wisconsin has been fertile ground for payday lenders because it is among two dozen states where lenders making short-term loans of less than $5,000 are virtually unregulated. In Wisconsin, these so-called “licensed lenders” — variously operating as payday, car title, check advance, check cashing and cash advance stores — need only register with the banking division of the state Department of Financial Institutions, and pay a $500 annual fee to do business.
Typically, a payday lender provides an advanced loan to be repaid within a short-term period, generally two weeks. The usual fee in Wisconsin for a two-week loan is about $20 per $100 borrowed, which amounts to an annualized percentage rate (APR) of 525 percent. If the borrower can’t repay, the lender “rolls over” the loan with additional fees tacked on with each extension. A stark example: A $200 loan refinanced four times leaves the Wisconsin borrower owing $200 in additional fees in just 10 weeks, creating what critics of payday lending call the “debt trap.”
Those critics, both Democrats and Republicans, say the industry’s meteoric growth in Wisconsin has evaded regulatory oversight for a single reason: its political contributions to key legislative leaders. Wisconsin Democracy Campaign has tracked those political contributions and lobbying activity of payday lenders since 1999.
Executive director Mike McCabe said all of the major payday lending chains operating in Wisconsin are based outside the state, among them, Check Into Cash, Tennessee; Advance America, South Carolina; Check ‘n Go, Virginia; and Payday Loan Stores, Chicago.
During the period 1999-2008, the payday lending industry was the No. 4 out-of-state individual contributor group to legislative and statewide office candidates, according to Democracy Campaign (see chart below).
“It has been a significant source of money, and they give it to both Democrats and Republicans. They hedge their bets. It’s a bipartisan problem,” McCabe said.
The Democracy Campaign’s research shows about 40 percent of that money has found its way to Assembly Republicans, reflecting the party’s control of the lower body until Democrats won a majority in the November general election and took over in January.
Contributions to the Senate were evenly split, reflecting shared control of the upper chamber during the period. A major chunk of that money is contributed to party campaign committees controlled by leaders, who assign bills to committees.
Hintz introduced his 2008 bill in the second year of his first two-year term in the Assembly. In an interview, he said he knew his 2008 bill was doomed when Republican Assembly leaders in control assigned it to the financial institutions committee, another favorite industry target for its contributions.
Hintz is asking Democratic leadership that now controls the Assembly to assign his 2009 bill to the consumer protection committee he chairs. With thousands of Wisconsin families trying to hold on in an economy wracked by layoffs and foreclosures, predatory lending should have higher priority than during the earlier failed attempts to regulate the industry, he said. “This is our No. 1 consumer protection issue,” he said.
Hintz expects the Assembly to turn its attention to his bill after the two-year state budget for the biennium beginning July 1 is enacted. “This is the right thing to do, and I’ll be disappointed if we don’t have a bill for the governor to sign by the end of the year,” he said.
Gov. James Doyle, a Democrat, vetoed a watered-down, industry-backed measure in 2004 limited to consumer education. Doyle urged legislators then to return with a bill that capped interest rates. “He said ‘let’s do it right’ and this is that bill,” Hintz said.
His bill would prohibit payday lenders from charging more than 36 percent per year, and toughen penalties for violations. Current law limits punishment for operating without a license to no more than a $500 fine and/or a six-month jail sentence. Hintz proposes to allow a borrower to also sue a lender that charges more than 36 percent for damages equal to twice the finance charge, or for incidental or consequential costs to the borrower, whichever is greater.
In 2006, Congress imposed the 36 percent interest rate cap for active duty military borrowers.
The new bill Hintz has introduced already has attracted 36 Assembly co-sponsors, including Reps. Nick Milroy, D-Superior, Gary Sherman, D-Port Wing, Mary Huebler, D-Rice Lake, and Majority Leader Tom Nelson, D-Kaukauna. Nelson, the Democrats’ No. 2 leader in the Assembly, authored the failed 2007 bill, and is in a strategic position to steer it through the 2009 legislative process.
No companion bill has been introduced in the state Senate, but at least eight of that body’s 33 members — including Sen. Robert Jauch, D-Poplar — have indicated they will support a payday loan bill with the 36 percent annual rate cap, Hintz said.
Nevertheless, legislators present and past have no illusions about the uphill fight ahead. Hintz wouldn’t name names, but said 18 industry-paid lobbyists already are working the Legislature to block his bill. “That’s the most I’ve seen on any issue I can think of,” he said.
Among those lobbyists are Superior native William “Bill” McCoshen, former commerce secretary for Gov. Tommy Thompson; and Shawn Pfaff, a former Doyle staffer, according to the Wisconsin Ethics Board Web site, http://ethics.state.wi.us.
Rep. Frank Boyle, D-Superior, who retired last year after 11 terms in the Assembly, was a co-sponsor for Rep. Nelson’s Assembly Bill 211 that was bottled up in the 2007 session. “It was the most political influence peddled since the Brewers (Miller) stadium bill, one of the most disgusting things I saw,” Boyle said. “Leadership in both parties (colluded) and the bill never saw the light of day.”
Given the changed economic landscape since then, Hintz has drawn a clear line in the sand with his 2009 proposal that will force leadership in both parties to choose between money and what is right, Boyle said. “It’s going to be one helluva fight,” he said. “My money is with the money.”
Another payday lending critic is Superior Mayor David Ross, who has led a local effort to curb payday lending using restrictive zoning. As a result, the number of payday outlets in the city has dropped from eight to seven, he said.
Ross, a Republican exploring candidacy for lieutenant governor in 2010, resorted to the zoning tactic after pressing legislators in both parties in 2007 to cap interest rates and limit the allowable number of payday loan “rollovers.” He watched in disgust as Republican and Democratic leaders buried Nelson’s 2007 bill in committee.
“It was laughable. There’s a role for government to protect against predatory practices, but most of what I’ve seen so far has been hypocrisy…lip service even to the point of sponsoring bills they know won’t pass, while taking massive amounts of money from the industry,” he said.
Ross spares Nelson from that criticism, calling the new Assembly majority leader a thoughtful, forceful advocate for protecting victims of predatory lending. In his new role, Nelson will have considerable influence over whether the Hintz bill becomes law, and Ross will be watching for the bill’s committee assignment. “This will be the (first) test,” he said.