Payday lending proposal introduced

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Legislators are considering proposals that would make Wisconsin the last state to regulate payday lending practices.

The Assembly recently passed AB 447, which would impose a $600 limit on payday loans and ban auto title loans. The Senate referred the legislation to committee, but has yet to schedule a hearing. It also has a separate payday lending proposal.

The Assembly version dropped a proposed 36 percent cap on interest rates charged by payday lenders. But it includes an amendment which allows customers to seek civil damages against lenders.

The bill allows a customer to recover an amount “equal to twice the interest charged for the loan, or the actual damages, whichever is greater…including any reasonable attorney’s fees.” It also imposes criminal penalties for illegal lending, including a fine of between $500 and $1,000, up to six months in prison, or both.

Limited work

Attorneys support the idea of curbing predatory lending, but doubt the change would create substantial work for private consumer lawyers.

Milwaukee attorney Gwendolyn G. Connolly said the civil remedy provision may be attractive on the surface for some lawyers, but she questioned whether it would be sufficiently lucrative.

The bill only allows consumers to take out one loan at a time and prohibits the lender from “rolling over” an existing balance into a new loan.

“If there is no rollover and the maximum loan is $600, I haven’t run the numbers, but I wonder how big damages could be?” Connolly said. “Is it going to be $50,000? No.”

Solo consumer lawyer Mary C. Fons noted that while twice the interest looks good on paper, a more definable dollar amount might be better.

“Perhaps it would be better if it was $1,000 a pop or something definable and clear for each violation,” she said.

Legal Aid Society of Milwaukee Inc. attorney Peter M. Koneazny also doubted whether private attorneys would invest the time and money in payday claims, given the difficulties in obtaining attorney fees in cases involving a few hundred dollars.

“Even if attorneys are getting their hourly rate, I don’t think they can expect the court to reimburse them $5,000 for a case with a $500 loan,” he said.

Koneazny also suggested that some omissions from the Assembly bill may make it difficult to even bring claims against lenders.

For example, he argued that without an interest rate cap or a limit on the number of loans a person can take out in a year, lending companies may be able to creatively circumvent the law.

There could be a flurry of violations at the outset if a law is passed, said creditor’s rights attorney Robert A. Pasch, as payday lenders adjust to the regulations.

“My best guess is there would be some technical violations, but I don’t see this as the best thing to happen since sliced bread for consumer advocates,” said Pasch, of Murphy Desmond SC in Madison.

Long-term, private attorneys that want to specialize in payday loan claims may be able to build up enforcement work, but their efforts will still be hampered by the “low dollars,” Koneazny said.