Putting the brakes on payday loans
May 20, 2006 - Racine, Wisconsin
Alderman Aron Wisneski said he and his neighbors in the 12th District started to notice a proliferation in west Racine of a certain type of business -- payday loan stores.
"We all started to remark how these places were popping up like mushrooms in the rain," Wisneski said.
Alderman Greg Helding, representing the 11th District, was concerned about what he was hearing was happening to some people who use payday loan stores.
"I talked to one person whose sister was basically ruined by such establishments," Helding said.
The two aldermen decided to try to do something about it.
Their first step was to propose a 90-day moratorium on any new payday loan businesses.
The proposal won unanimous support from the Common Council last week.
"This will give us time to work on other legislation to deal with it," Helding said.
A study by the state Department of Financial Institutions found there were about a dozen payday loan stores in the entire state in 1995; by 2005, there were more than 400.
"They are proliferating at a fantastic rate," Helding said.
In Racine, there are about a dozen payday loan stores, several within blocks of each other.
That's on purpose, Wisneski said.
"They purposely set up across the street from one another like fast-food places might, knowing they might be able to get one another's business," Wisneski said.
"But, unlike a fast-food restaurant, where you choose one, eat there and you're full, at these places, people go to one and take out a $300 loan, walk across the street and take out another $300 loan.
"They depend on this happening."
High interest rates
Helding said he is concerned that these businesses are taking advantage of people who are already struggling financially by charging exorbitant interest rates.
"In areas that already may be economically depressed, people may feel they have no other place to turn, then they end up getting roped in and getting into trouble, and they are not able to pay rent, or for other important things like utilities, food or clothing," Helding said.
Those who want to restrict payday loan businesses likely have never been in such need and fail to recognize the tremendous need for such services, said Lyndsey Medsker, spokeswoman for the Community Financial Services Association, the national trade association representing payday lenders.
"They are not looking at it from a consumer perspective," Medsker said.
Forced to choose
"I know of no traditional bank that will loan $200," she said.
She said people are forced to make choices: They could write a bad check and risk a $35 fee, pay $35 for their bank's overdraft service, or not pay a bill and incur a late fee.
Another option is to borrow $200 from a payday loan store, pay a fee that is typically $15 per $100 borrowed, and pay it back in two weeks.
"The loan is over in two weeks, and they are fine again," she said.
Restricting brick-and-mortar businesses will only force people to go to unregulated payday loan services online, she added.
Zoning restrictions next?
Both Helding and Wisneski dismiss the criticism that the moratorium and what will likely be tighter restrictions on such businesses will interfere with the free-enterprise system.
"We do see these businesses as fundamentally different from other businesses," Wisneski said. "It's in the community's best interest to pay attention to what businesses come in.
"If a business sells women's clothing, we're happy to have a business of that sort. If there's a drug dealer in the neighborhood, some could argue that's free enterprise, too, because the drug dealer is a service that some want, but that doesn't make it right.
"In the case of payday loan businesses, we believe (those) businesses are doing a net disservice to Racine," Wisneski said.
During the moratorium, Helding and Wisneski will be looking at what other communities have done to stop more payday loan stores from operating and to address some of the reasons there is a need for such services, they said.
Helding said they will be looking at zoning that would require stores to be 2,500 feet or more from each other and at least 250 feet from a residential area.
Wisneski said they will research other possibilities for people who now rely on such businesses.
"It is also our intent to have a dialogue with local banks and with borrowers in our city to let people know what some of the alternatives are to going to these payday loan stores to get money," Wisneski said.
Milwaukee Journal Sentinel, Jennie Tunkieicz, Journal Staff
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