Payday Loans

Many consumers who need cash quickly turn to payday loans—short-term, high interest loans that are generally due on the consumer’s next payday after the loan is taken out. The annual percentage rate of these loans is usually very high—sometimes 390% or more. In recent years, the availability of payday loans via the internet has increased significantly. Unfortunately, some payday lending operations have employed deception and other illegal conduct to take advantage of financially distressed consumers seeking these loans.

The Federal Trade Commission (FTC) enforces a variety of laws to protect consumers in this area. The agency has filed many law enforcement actions against payday lenders for, among other things, engaging in deceptive or unfair advertising and billing practices in violation of Section 5 of the FTC Act; failing to comply with the disclosure requirements of the Truth In Lending Act; violating the Credit Practices Rule’s prohibition against wage assignment clauses in contracts; conditioning credit on the preauthorization of electronic fund transfers in violation of the Electronic Fund Transfer Act; and employing unfair, deceptive, and abusive debt collection practices.

The FTC has also filed recent actions against scammers that contact consumers in an attempt to collect fake or phantom payday loan debts that consumers do not owe. Further, the FTC has filed actions against companies that locate themselves on Native American reservations in an attempt to evade state and federal consumer protection laws.

Car Title Loans

A car title loan is also a loan made for a short period of time—often for only 30 days. To get a car title loan, you must give the lender the title to your vehicle. The lender gives you cash and keeps the title to your vehicle. When it is time to repay the loan, you must pay the lender the amount you borrowed, plus a substantial fee—25% of the amount you borrowed, for example.

If you borrow $1,000 for 30 days, and the lender’s fee is 25%, you must repay the lender $1,250 30 days later. And if you are not able to repay the money when it is due, the lender may take or seize your car and sell it to satisfy the loan. This can be devastating for someone who relies on their car to get to work or to the grocery store.

In Wisconsin, payday loans are legal and regulated by the Wisconsin Department of Financial Institutions. The state allows payday loans up to $1,500 or 35% of the borrower's gross monthly income, whichever is less. The loan term must be 90 days or less, and rollovers are prohibited. However, there is no limit on the interest rates and fees that lenders can charge. The Truth in Lending Act requires lenders to disclose the cost of the loan, including the annual percentage rate (APR), before the borrower agrees to the loan terms. Car title loans are also legal in Wisconsin, with similar regulations as payday loans. Borrowers must provide the title of their vehicle as collateral for the loan, which can be up to 50% of the car's value or $25,000, with a maximum loan term of six months. If the borrower fails to repay the loan, the lender can repossess and sell the vehicle to recover the debt. Both payday and car title loans in Wisconsin are subject to federal regulations, such as the FTC Act, which prohibits deceptive and unfair practices, and the Electronic Fund Transfer Act, which regulates preauthorized electronic fund transfers as a condition of credit.