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Consumer Alert: Understanding the Financial and Legal Consequences of Payday Lending in Wisconsin

Consumer Alert: Understanding the Financial and Legal Consequences of Payday Lending in Wisconsin

Life is predisposed to the unexpected. Illness, injury, job loss, and other personal tragedies can leave even the most financially sound individual suddenly strapped for cash. In these desperate times, it is often tempting to fall victim to the lure of the seemingly countless payday lending outlets that have taken up shop in Wisconsin including the Payday Loan Store, Check Into Cash, Check ‘N Go, EZ Money, Advance America, and many others.

On their large and colorful storefront signs and billboards, these companies purport to offer borrowers a “short-term” loan in order to make ends meet. However, according to the consumer watchdog group Wisconsin Watch, an individual borrowing more than $200 is likely to be steered in the direction of taking out a high-interest installment loan once inside. The loose regulations governing this industry allow payday lenders to effectuate these high interest installment programs with minimal investigation into the borrower’s ability to repay the loan. For instance, payday lenders are not required to perform a credit check on the borrower, and no collateral is required in obtaining the loan. These seemingly convenient benefits come with serious costs and consequences, however.

Wisconsin is one of only eight states that place no caps on the annual interest rates payday lenders are able to charge their borrowers. Oftentimes, it can take many months for payday loan borrowers making maximum monthly payments to even begin paying off the principal amount borrowed. According to the Department of Financial Institutions, the average annual interest rate on “short-term” payday loans in Wisconsin in 2015 was 565%. Wisconsin Watch reports that a borrower taking out a $400 loan at this rate would pay $556 in interest payments alone over a 3-month period. Compare this to the interest rates of standard personal loans offered by traditional banks and credit unions which often begin at just 5%.

Failure to make timely payments on loans acquired from payday lenders may also have serious legal ramifications. Payday loan agreements regularly contain clauses imposing stiff overdraft fees and lender penalties which a borrower is legally obligated to pay in the event of non-payment or other default. The promissory notes typically require the borrower to pay the lender’s costs of collection, including attorney fees. Serial non-payment can result in lender-initiated default actions in a court of law.

Unfortunately for Wisconsin consumers, payday lending outlets are unlikely to disappear from the financial landscape anytime soon. For this reason, it is imperative that Wisconsin consumers educate themselves on the financial and legal risks posed by high interest installment loans. Many of the borrowers who frequent payday lenders never take the time to consult with their local bank or credit union to explore an alternative loan at a fraction of the interest rates offered by payday loan outlets.

For additional information on the dangers of payday lending and the alternatives available to consumers, please visit the Wisconsin Department of Financial Institutions or the Federal Deposit Insurance Corporation webpages.

Lenders collecting a debt from a borrower are required to abide by the requirements of the Fair Debt Collection Practices Act, violations of which can give rise to a cause of action and damages. John M. Kelly, Attorney at Law, LLC is home to 42 years of experience in consumer finance and other associated legal practice areas. Contact Attorney Kelly today if you have legal questions regarding payday loans, lending practices, or other consumer issues.