Archive for February, 2010
Wisconsin Gets It
The action that some states have chosen to take-all in the name of consumer protection-is to ban alternative financial products so that no one has access to brick and mortar payday loan establishments. So, instead of protecting consumer rights and allowing individuals to have credit options that they otherwise would not have, they are now limited to overdraft fees and late payment fees. In addition, there is typically nowhere for consumers to turn in cases of financial emergency and uncertainty. One study out of North Carolina concluded that consumers more often did not pay an expense or paid a bill late when in financial crisis and there was no longer access to payday loans. Only 5 out of 401 people surveyed said that prohibiting payday lending has had a positive effect on their household. North Carolina and similar states could have chosen a number of other moves in order to make the product more consumer friendly while allowing the payday institutions to exist and profit.
Wisconsin introduced a new bill to change payday loan regulation while still allowing consumers to have access to short-term credit and eliminating any abusive practices in the state. Lenders would be banned from having customers guarantee their vehicles as collateral and would set the maximum loan amount at $600 or 35% of the borrowers two-week income, whichever is the least. Although there are some parts of the bill that I wouldn’t particularly agree with, I commend Wisconsin for acknowledging that the product is a necessary and viable service that can be extremely beneficial to those with limited credit options. However, if the new legislation requires all payday loan customers to payoff one bulk payment on their due date, my concern is that consumer advocates will not support it. One of the major arguments is that customers who pay their loans off in full find that they still need money to pay other bills, hence the infamous “cycle of debt” claims. A pay-down option would at least allow consumers to decrease the balance before the loan has to be paid in full. All things considered, it’s a huge step toward the acceptance of payday loans as a legitimate product in Wisconsin.
