Payday loan outlets up 16-fold since 1995
By PAUL GORES
pgores@journalsentinel.com
Last Updated: Feb. 2, 2003
jsonline.com
Payday lenders continued their rapid expansion in Wisconsin last year, adding 44 new loan outlets.
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Graphic/Rika Kanaoka
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Since 1995, when there were only 17 payday loan offices in the state, the number of places to obtain a payday loan has grown to 276 - a 16-fold increase.
The Wisconsin statistics appear to reflect a national trend. The number of payday loan offices surged from less than 500 in the early 1990s to about 12,000 in the United States last year, according to a report last week by the Federal Deposit Insurance Corp.
In a payday loan transaction, a customer needing cash receives money by writing a check to the lender for the amount borrowed, plus a fee. The lender agrees not to cash the check for a specified term, often two weeks - theoretically, after the borrower's next payday.
With most payday lenders, the customer pays $20 for every $100 borrowed. The majority of loans are for $500 or less.
The industry says payday loans fill a niche for people with a short-term cash flow problem and are a better alternative than bouncing a check and paying a non-sufficient fund fee of close to $30 to their bank.
But opponents say payday lenders prey on vulnerable consumers with few borrowing options. The fees, especially if a borrower is unable to pay off the loan when it comes due, amount to outrageous amounts of interest, they contend.
Industry cites demand
Despite criticism and efforts to control them with legislation, payday stores continue to spread throughout the state.
John Rabenold of Check 'n Go of Wisconsin Inc., an industry spokesman for Wisconsin, said the growth in payday offices is a result of acceptance and demand by consumers.
"It's a growing industry. We're still pretty young," Rabenold said.
Rabenold said the 2002 rise in offices may have been fueled partly by the slow economy, in which workers saw overtime hours cut without much warning and then found themselves temporarily short of cash. Customers must have a checking account and be employed to get a payday loan, he said.
But state Sen. Judy Robson (D-Beloit), who plans to reintroduce a bill this year that would impose interest-rate caps and other restrictions on payday lenders, said people who use them are often unaware of the "exorbitant interest rates."
A 2001 state Department of Financial Institutions study said that when calculated as an annual percentage rate, the average interest rate on the loans it reviewed amounted to 542%.
"They prey on people who have limited choices and who may not be very sophisticated in financial ways and don't understand they're paying such a big interest rate," Robson said.
Kathryn Crumpton, manager of the non-profit Consumer Credit Counseling Service in Milwaukee, said one problem with payday loans is that some people take out new ones without first paying back a previous loan with a different lender.
"I've seen people who have payday loans that are equal to or exceed what their take-home income is for the month," she said.
A version of this story appeared in the Milwaukee Journal Sentinel on Feb. 3, 2003. |
