Judges ask Supreme Court to take loan case (UPDATE)

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By TODD RICHMOND
Associated Press

MADISON, Wis. (AP) — A panel of Wisconsin appellate judges asked the state Supreme Court on Thursday to decide when interest rates on payday loans become excessive.

The case marks the first time Wisconsin courts have faced the question of whether state statutes permit judges to determine when interest rates on short-term loans are too high, the 4th District Court of Appeals wrote in its request. The Supreme Court is best suited to make a ruling since any decision will have a statewide impact on consumer credit transactions, the appeals court said.

The case stems from a series of loans Jesica Mount of Onalaska secured from Payday Loan Stores of Wisconsin Inc. during the last quarter of 2008. According to court documents, annual interest rates on the loans varied from 446 percent to 1,338 percent.

The loan company filed a small claims lawsuit against Mount in December 2009 after she failed to make her payments. Mount filed a counterclaim alleging the loans violated the Wisconsin Consumer Act because the interest rates were unconscionable. La Crosse County Circuit Judge Ramona Gonzalez agreed with Mount and granted her summary judgment.

The loan company contends on appeal that a judge can’t find a particular interest rate is unconscionable because the consumer act expressly permits any rate or charge. The company goes on to argue that the Legislature, not judges, should determine what interest rates are too high. If judges start making those decisions, their rulings will vary and lenders won’t know what interest rates are acceptable, the company maintains.

Mount, however, has countered that the consumer act is designed to protect people from unfair, deceptive and misleading business practices and must be construed liberally. A lack of a rate cap doesn’t mean a rate of more than 1,000 percent isn’t excessive, she adds.

The 4th District Court of Appeals said the consumer act is unclear on whether a judge can determine if an interest rate is excessive.

“Guidance from the Supreme Court on both these topics will benefit consumer law practitioners and the lower courts,” the appeals court wrote.

Online court records list Mount’s attorney as Eric Crandall. He didn’t immediately return a message Thursday. The payday loan company’s attorney, Matthew Cornetta, also didn’t immediately return a message.

Four of the Supreme Court’s seven justices must vote to take a case on certification from a lower court. Supreme Court spokesman Tom Sheehan said in a statement the court will take the time it needs to gather information and make a decision.

Former Gov. Jim Doyle, a Democrat, signed a law last year that imposed the first regulations on the burgeoning payday loan industry in Wisconsin after months of fierce debate. The measure limits loans to $1,500 or 35 percent of an applicant’s monthly income, whichever is less and prohibits loan stores within 1,500 feet of each other or 150 feet of residential areas. The measure also banned auto title loans, but didn’t address interest rates.

The new state budget set to take effect Friday lifts the ban on auto title loans. Rep. Evan Wynn, R-Whitewater, has written a bill that would cap payday loan interest at 36 percent. That measure has bipartisan support in both the Assembly and Senate, but it hasn’t moved out of the Assembly Financial Institutions Committee.

Curt David, an aide to committee chairman Rep. Bill Kramer, R-Waukesha, said the bill may come up for consideration this fall, although it might make more sense to wait for the Supreme Court to rule in Mount’s case.

Wynn said something must be done.

“They’re actually preying on people who are in hard financial circumstances,” he said. “For people who need payday loans, they’re the ones living paycheck to paycheck. They’re under a lot of stress. They don’t read all the fine print. They take these things and it winds up like this lady from Onalaska where she pays 1,000 percent.”

Peggy Partenfelder-Moede, a lobbyist working for several short-term lending companies that oppose Wynn’s bill, had no immediate comment.