Photo by Terri Williams
Beverly Currie found herself in a tight spot. Currie, a single mom, needed extra money for some expenses but couldn’t wait for her next paycheck. Instead, she went to a payday lender and borrowed a small sum of money. She now says she regrets it.
“I found myself digging a pit,” Currie told the Shepherd. “It was horrible.”
She couldn’t pay back her first loan, then ended up paying interest on that and had to take out a second loan to pay off the first. In the end, she says she ended up paying thousands of dollars in nine to ten months on just $460 in loans that were supposed to be paid off quickly.
Wisconsin is one of just eight states that doesn’t limit the interest that payday lenders can charge, and one of 13 that allows auto title loans. That cap was lifted in 1995 by then-Gov. Tommy Thompson, and more recent attempts to impose a cap on interest rates failed in the state Legislature.
According to the state Department of Financial Institutions, in 2015 the average annual interest rate for these loans was a whopping 565%. So a $400, 14-day loan at that rate would create $86.68 in interest, according to the DFI. In comparison, a 36% interest rate would add $5.52 to that same loan and a 12% interest rate would add $1.84 in interest.
But that horrible payday loan experience wasn’t Currie’s final encounter with a payday lender. After losing her job she wound up working for one for about a year and a half and saw the business from the lender’s point of view.
“Being on the payday lending side, I saw the struggle that police officers went through, teachers went through, nurses went through getting that money and how hard it was to pay back,” Currie said. “Not only did we lend that money but we also did title loans on their vehicles. It was horrible to see the people’s pain, to lose something or to get that check taken to the bank and the funds were not available and they would still have to pay that fee.”
Federal Regulations in the Works
Currie has joined forces with Citizen Action of Wisconsin and the national People’s Action Institute to urge the federal Consumer Financial Protection Bureau (CFPB) to adopt new, national rules reining in payday lenders. The bureau is taking public comment on the rules until Oct. 7.
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The proposed rules don’t cap the interest rate, but they do add more consumer protections by requiring the lenders to take extra steps to ensure that the borrower could pay off the loan and still pay their financial obligations and their day-to-day living expenses. The rules also make it more difficult for the lender to roll over or issue a similar loan within 30 days of the paid-off loan, which would help to break the debt trap in which consumers take out multiple loans to pay off earlier ones. The rules would also impose new restrictions on lenders’ ability to issue fees when the borrower’s checking account has insufficient funds, as well as other reporting requirements.
Robert Kraig, executive director of Citizen Action of Wisconsin, said that while the proposed rules aren’t perfect, they would begin to provide a check on the industry’s worst abuses and set a national standard that would help boost Wisconsin’s consumer protections.
“This is a bottom-feeding industry that preys on people in financial distress,” Kraig said.
That said, Kraig warned that the industry would find loopholes in the regulations or develop new financial products to evade the new regulations if they are imposed.
“This is an industry that has a history of innovating with new loan products,” Kraig said.
He added that strong state regulations—especially an interest-rate cap—are still needed to add more consumer protections and halt predatory lending practices.
The payday loan industry isn’t going down without a fight. Its national group, the Community Financial Services Association of America, blasted the proposed rules when they were released in June, saying they’d harm consumers who don’t have anywhere else to turn for short-term cash.
“The CFPB’s proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” argued the group’s CEO, Dennis Shaul.
But Beverly Currie has some simple words for those seeking out a seemingly quick fix for their money problems.
“I tell everybody, do not go,” Currie said. “If you need that money you can wait the two weeks for your payday. It does not benefit you. Just wait it out. Just wait it out.”
To comment on the proposed rules, go to regulations.gov and use the ID number CFPB-2016-0025-0001 or click on Payday, Vehicle Title and Certain High-Cost Installment Loans. Or sign on to Citizen Action of Wisconsin’s comment form at citizenactionwi.org.
