May 12, 2011
Senator Cullen Supports Interest Rate Cap on Payday Loans
Sen. Tim Cullen has signed onto legislation that will cap interest rates on payday loans at 36 percent.
Cullen said an interest rate cap is especially urgent considering action taken by the Joint Finance Committee Thursday that reversed some of the progress made last session on restricting predatory lending. The Legislature increased regulation of payday loans last session, but did not impose an interest rate cap.
“An interest rate cap is necessary to prevent consumers from being trapped in a cycle of debt,” Cullen said. “Congress put a 36 percent interest rate cap on payday loans for members of our armed forces. All Wisconsinites should have the same protection.”
A payday loan is a loan for which a consumer writes a post-dated check or authorizes a future electronic funds transfer. The average interest rate on payday loans is 400 percent, according to the Center for Responsible Lending.
“Legitimate lenders make sure that a borrower has the ability to repay. Payday lenders do not,” Cullen said. “Payday lenders thrive on making loans to people who are not able to pay off the loan, so they have to keep borrowing and paying fees. The Center for Responsible Lending says that 12 million Americans are trapped every year in a cycle of 400 percent interest loans. Some loans being marketed today have interest rates of 650 percent.”
The bill was drafted by Sen. Glenn Grothman and Rep. Evan Wynn. Once the bill is introduced, it will be referred to committees in the Senate and Assembly for a public hearing.
Sen. Cullen represents most of Rock County and the Whitewater area in the Wisconsin Senate.