Bankers, insurance firms and groups representing low-income people are calling on Gov. Scott Walker to veto an item in the state budget that would give payday lenders a broad, new range of products to offer.
The proposal, included in the catch-all budget amendment introduced just over a week ago, would let payday lenders sell insurance, annuities “and related products” as well as “any financial or consumer financial services subject to regulation by statute or rule.”
“Payday loans are debt traps by design. Giving predatory lenders even more leeway to exploit Wisconsinites through a broad range of questionable financial products is the last thing we should do,” Peter Skopec, director of the Wisconsin Public Interest Research Group (WISPIRG), said in a news release sent by a coalition of 30 groups.
The Wisconsin Council of Churches, UW Law School Consumer Law Clinic, League of Women Voters of Wisconsin, Coalition of Wisconsin Aging Groups and Citizen Action of Wisconsin are among the organizations that signed a letter to the governor calling for a veto.
“If passed, these provisions will not only sharply degrade Wisconsin’s reputation for consumer protection but also push more working families to the economic margins,” said Sarah Orr, director of the Consumer Law Litigation Clinic at the UW Law School.
Payday loans typically involve relatively small amounts of money, loaned at relatively high interest rates, due for payment in full within a short period, such as the borrower’s next payday, and often are used by customers who may not be able to get access to more mainstream services.
Opponents cited a 2013 report by the Center for Responsible Lending that showed payday lenders issued $76.7 million in loans and charged $22.5 million in fees during the previous year.
Five industry organizations also are calling on the governor, in a letter, to remove the payday lender provisions.
“We believe they’re very expansive in nature, (providing) more authority than any other regulated financial institution has,” said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association, in an interview.
The Wisconsin Council of Life Insurers, Wisconsin Credit Union League, Wisconsin Insurance Alliance and Wisconsin Manufacturers & Commerce also signed that letter.
Andrew Franken, president of the Wisconsin Insurance Alliance, said the measure should not be part of the budget. “I think we like to have time to look at these types of things and evaluate the impact on consumers and the industry,” he said in an interview. “We would have hoped for separate legislation on this.”
Thirty-six payday lending companies operate in Wisconsin, with a total of 320 locations statewide, according to the Department of Financial Institutions, which regulates the industry’s operations in the state.
The budget amendment, submitted just days before final legislative action on the state budget, does not indicate which lawmakers submitted the payday lender proposal. But the Milwaukee Journal Sentinel identified PLS Financial Services, of Chicago, as “the main company pushing for the payday lender provision.”
Reached in California, PLS spokesman Matt Swentkofske would not confirm that, nor would he identify which lawmakers may have introduced the provision, saying only, “We would support what it tries to accomplish.”
Swentkofske said the primary services PLS Financial wants to add in Wisconsin are auto insurance and tax return preparation.
“We operate in 11 other states. In many of those states, we can offer auto insurance,” providing quotes from a variety of insurance companies, he said.
Swentkofske also said payday lenders are allowed to handle simple tax returns in 28 other states.
“There are millions of people in this country who use my industry and my company’s services. And to add to those services — to become a complete financial service center — is really in the best interest of our customers,” he said.
Swentkofske maintained that the provision would not give new authority to payday lenders, but it would require them to seek licensing from only one state agency instead of two. For example, to sell auto insurance, the company would need approval only from the State Office of the Commissioner of Insurance, rather than from that office and the Department of Financial Institutions.
“It will streamline the process and eliminate one more, extra layer of bureaucracy in Wisconsin,” he said. “From our perspective, it’s going to modernize the statutes in Wisconsin and bring Wisconsin in line with other states.”
Oswald Poels, of the bankers association, said she thinks it is “potentially very harmful for consumers” to give payday lenders more financial authority when they are not scrutinized as closely by regulators as banks are.
“I don’t think the banking industry is concerned at all about competition, as long as it’s fair competition,” she said. “This is definitely not a level playing field.”