Frederica Freyberg:
We move now from health matters to money matters, specifically businesses known as “payday lenders.” Those are the storefront companies that will give you an advance on your next paycheck. The number of these stores has grown from only a handful a decade ago to 542 currently in operation in Wisconsin. There were $732 million in loans from these businesses in 2008. At the center of controversy is a 542 percent lending rate, a figure that the State Department of Financial Institutions calculated in 2002 but says has only grown since that time. State Rep. Gordon Hintz is an Oshkosh Democrat who has drafted a bill that would cap the lending rate on consumer loans of $5,000 or less at 36 percent. This would include auto loans. Rep. Hintz joins us from Oshkosh. The payday loan industry is represented by Erin Krueger of the Wisconsin Deferred Deposit Association. That group represents three-quarters of Wisconsin's payday loan operations. Thanks to both of you for being here.
                       
Erin Krueger:
Thank you for having me.

Gordon Hintz:
Happy to be here.

Frederica Freyberg:
Rep. Hintz, first to you, what is wrong in your mind with these lenders?

Gordon Hintz:
Wisconsin has no laws or no regulations on the books right now. Those of us that are contacted by consumer advocates, community advocates, bankruptcy attorneys, even the individual families themselves see what happens when people take out a short-term loan that has no consideration of their income and find themselves unable to pay it back. We see sort of the systemic erosion of wages and benefits that sort of exacerbates income and equality, has a negative impact on our communities. We think that is something that was illegal for much of Wisconsin's history that has now proliferated into 542 stores requires some basic protection for people so they're not taken advantage of.

Frederica Freyberg:
How would you describe these? I know that they have been described as predatory.

Gordon Hintz:
Well, they're on every corner and their accessibility is part of the issue. We know that there are people that have a challenge with their credit and are in need of short-term resources, but when you go in to get a loan, there's no consideration made of your ability to pay that back, meaning if you have to take out $500, and you're expected to pay $650 back in two weeks, they don't take into consideration your rent, your food, your other needs. And when you're unlikely to pay it back, you end up rolling it over. And we find a number of people out there, not everyone, but a number of people in over their heads beyond what they originally expected when they took out that loan.

Frederica Freyberg:
Erin Krueger, a response to all these things.

Erin Krueger:
Well, to start the idea that this is an unregulated industry is really not accurate. We here in the state do have a license that is applied with the department of financial institutions. There are multiple federal regulations that apply to this industry. So to say that there isn't any regulation is a little far-reaching.

Frederica Freyberg:
Who is your typical customer?

Erin Krueger:
Our typical customer — and we've had numerous studies that have been performed on what the typical customer is for a payday advance. The typical customer ranges between 25- and 40-years old. Income levels are between $25,000 and $50,000 a year. There is some college education that they've received. They are owners of their own home. Most importantly, they are 100 percent employed at the time, and they also have a checking account that's active.

Frederica Freyberg:
But certainly in need of an advance. Rep. Hintz, couldn't these people be viewed, the industry that is, as filling a need for people short on cash?

Gordon Hintz:
We hear that from the industry a lot, like this is a necessary service, but I don't believe a necessary service is something that is set up to have people fail. You know, to have two weeks to pay a loan back that was made with very little consideration of what their ability to pay that back is, you know, that sort of enables and facilitates sort of reckless decision-making on financial matters. We have seven of them in Oshkosh within a block and a half of each other and oftentimes we have cases where someone goes from one to the other to take out multiple loans or to take out one loan to pay someone back. You have to ask the question, why should some people be stuck with — is it really a necessary service to say we need to have you have a 600 percent annual interest rate loan?

Frederica Freyberg:
Erin Krueger, isn't there something to be said for the fact that perhaps people in these store shops should say, no, you've already taken out a loan. You can't do that the same day here a block down.

Erin Krueger:
Right. Well, the bottom line here for all of this and discussion about reform measures and things that we're hearing about trying to limit, issues relating to consumers getting in over their heads with multiple loans, unfortunately Rep. Hintz’s bill does not get at any sort of reform measure. His bill is not a regulation bill, it's a prohibition bill.

Frederica Freyberg:
It caps the interest rate at 36 percent, and I want to ask you about that. Interest rates over 500 percent on an annualized basis, how do you justify that?

Erin Krueger:
Right. Well, you have to take a look at exactly what the measuring tool is for the product. The product is a two-week product. It's a 14-day transaction. So applying an APR, annual percentage rate to that would give these figures that you're seeing, the 500 and some percent interest rates. When you have a piece of legislation like Rep. Hintz has with a cap on that two-week product, you're applying an annual percentage rate to that two-week product. Therefore, when someone comes in the door to take out that $100 loan, instead of the fees that are being charged now, we're only able to charge $1.38 per 100 which would eliminate the industry and most importantly eliminate a choice for consumers in an already credit-crunched market that we see.

Frederica Freyberg:
Rep. Hintz, is that the point, to eliminate the industry?

Gordon Hintz:
I’d like to point out that until 1996 in this state the rate cap was 18 percent. So our proposal is twice what was legal in 1996. Our proposal mirrors what Congress determined is necessary to protect military families and personnel across the country. It's about the same as what has been law in 15 other states in the country. So this isn't some radical proposal. When we looked at all of the things that could be done to keep more wages in people's pockets, especially during this tough economic time, you know, we think that we should extend the same protections that Congress on a bipartisan basis extended to military families and members to all people in Wisconsin.

Frederica Freyberg:
Go ahead.

Erin Krueger:
Yeah. I can just honestly say I think that there is, to see the 15 other states that have applied this interest rate cap, you can't deny they're not in operation in those states. They're not giving advances to military under that 36 percent interest rate cap. And I think there is a variance of differences between military personnel and civilian personnel that do warrant the ability for consumers to have more choices that they do now based on all of the criteria that they have met as consumers.

Gordon Hintz:
I would say —

Frederica Freyberg:
Go ahead.

Gordon Hintz:
I'm sorry. I think it's safe to say the same corrosive effect it was having on military members that was leading to the highest number of deferments into the military is happening to our citizens in Wisconsin. So no one would argue that we have challenges with some people with bad credit, with the un-banked. But to say that 600 percent interest is the only option available, that we shouldn't try to market and promote and have better financial services out there, you know, I think is a silly argument. We need necessary protections. I think the same argument that was used for them can be extended to all people in Wisconsin.

Erin Krueger:
I would just say this is not, in terms of the choice issue and the alternatives that are available, there are other alternatives available to people. We are not saying that we're the only option for people available to their consumer needs. They do have the ability to go bounce checks. They do have the ability to go and charge more on their credit cards. What we're saying is if you look at the comparison of cost between all of these things and you apply APR even on things like overdraft protection or bouncing check fees, for someone walking into a local coffee shop and writing a check for $4.20 for a cappuccino. They bounce that check, that is an automatic $35 charge from their bank, not to mention a $20, $25 charge from the merchant itself. When you look at what we charge in fees to those individuals, the choice is clear. It's a cheaper alternative, and it's much more convenient for a lot of individuals.

Frederica Freyberg:
Rep. Hintz, according to the Wisconsin Democracy Campaign, payday lenders represent the biggest source of out-of-state money to politicians in the last session. Not all Democrats are with you on this piece of legislation. How tough do you think it will be to pass?

Gordon Hintz:
I'm confident as we continue to tell the stories that have happened throughout Wisconsin, when they see the number of communities that have already banned them through zoning exclusions, our coalition is getting bigger. I think the legislature has a responsibility, an obligation to do the right thing, not just from a moral standpoint, but from an economic standpoint. Our same proposal was part of President Obama’s economic agenda on strengthening the working family, so I feel like we're on pretty good ground when it comes to Democratic values and doing the right thing, and we've got a pretty diverse coalition of Republicans and Democrats on the Senate and Assembly. I know it's going to be a big fight. There's $200 million that the industry has at stake at their 542 stores. The momentum is only building for it. It's the right thing to do and it would benefit our state at a time like this.

Erin Krueger:
I'm glad he's admitting there is indeed a lot at stake. This is an industry-ending solution, which to me is no solution at all. These are 542 stores, 1200 employees. It represents a large group of consumers who are choosing to use this product because it is their best option financially as well as it is for them to avoid a lot of other devastating consequences relating to bankruptcies. Short-term credit needs and bouncing checks and everything else that could affect their credit score in the long run. We look forward to having a discussion on this. Unfortunately with this type of legislation, it doesn't allow us to have a discussion.

Frederica Freyberg:
All right. Gordon Hintz and Erin Krueger, thanks very much.

Erin Krueger:
Thanks very much.

Gordon Hintz:
Thanks for having me.