|Decision Makers:||Local Government State Government|
|Population Reach:||50-99% of WI's population|
|Impact on Disparities:|
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Payday loans are small, short-term loans that must be repaid by a borrower's next payday. To receive a loan, a borrower generally writes a check to the lender, who provides cash for the amount minus a fee. When the loan is due the check is cashed. Payday loans are usually offered by specialized companies instead of banks or credit unions. Fees average $15-$30 per $100 borrowed (Stegman 2007), yielding annual percentage rates of nearly 400%. Payday loan regulations can include bans, caps on maximum interest rates and loan amounts, minimum loan terms, and truth in lending statements educating consumers on the true costs of loans.
There is insufficient evidence to determine whether payday loan regulation increases financial stability for individuals in the communities where they are implemented. Available evidence suggests that payday loan bans, caps, and consumer education on the true costs of the loans appear to reduce, though not eliminate, use of payday loans (McKernan 2013, Zinman 2010, Bertrand 2011). Bans may reduce involuntary bank account closures (Campbell 2012) and bankruptcies (Morgan 2012), and caps on maximum loan amounts or interest rates may decrease use of other high cost, short-term credit resources such as pawn shops (McKernan 2013, Zinman 2010). However, bans and caps may also limit access to credit in emergencies, increasing the number of bounced checks, overdraft fees, and bills paid late (Morgan 2012, Zinman 2010). Payday loan access may increase financial hardship in some circumstances, but may alleviate it in others (NBER-Zinman 2013, Morse 2011, Melzer 2011). Additional evidence is needed to confirm effects.
Payday loan regulations vary by state. Thirty-eight states specifically allow payday lending, while the other twelve have no payday specific statutes and rely on other regulations (NCSL-Payday lending statutes).
Wisconsin allows payday lending, with restrictions on fees, interest rates, and maximum liabilities, in state statutes 138.14 and 2013 Act 20 (NCSL-Payday lending statutes).
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