The Legal Aid Society of Milwaukee is joining with other nonprofit agencies to strongly urge the legislature to pass AB 392, limiting exploitive small loan practices. In Wisconsin and throughout the country, triple-digit payday loan and auto title loans harm the most vulnerable members of society, including elderly on fixed incomes and families already crippled by medical debt and sudden unemployment.
According to the Legal Aid Society’s litigation director Peter M. Koneazny, who has represented payday and auto title borrowers, “these are toxic loans, just like those in the disastrous subprime mortgage industry, because they are made knowing that desperate borrowers cannot repay the loans when they become due.” According to Koneazny, small predatory loans are designed for abuse because lenders can make more money when most of their borrowers fail. Many borrowers can do no more than pay the interest ($15 – $25 per $100) when the loan is due in a week or a month, eventually paying many times over what they borrowed. “Once people get behind on these loans, they are buried by the interest payments,” Koneazny said.
Lobbyists for the lending industry suggest that payday and title loans provide a useful service for those with low income and poor credit. Legal Aid lawyers who see the consequences of these loans disagree and believe that small loans with triple-digit interest rates do much more harm than good. When the payday lenders left North Carolina, a study for the state’s banking commission determined resoundingly that the state was better off without payday loans. Borrowers with any chance of repaying a high-cost loan usually have other resources available to them. For the others, a payday or auto title loan becomes nothing but a “debt trap” that makes the lenders rich while driving borrowers and their families into financial ruin. According to Koneazny, “the fact that there is a ready market for these products among financially desperate people is no better justification for exploitive lending than it is for selling drugs.”
AB 392, sponsored by Rep. Gordon Hintz, is one of several small-loan bills, but the only one that caps interest rates. National consumer watchdog organizations have determined that rate caps, such as the 36% APR in effect for military families and that contained in AB 392, are the only effective way to prevent the lending industry from finding a loophole in order to continue exploitive rates and practices.
Legal Aid Society, founded in 1916, is a nonprofit civil legal services organization that serves low-income residents of Milwaukee County.
For more information, contact: Peter Koneazny at 414-727-5333