Payday loans are short term, small loans that are linked to the borrower’s salary. Also known as cash advances, these loans are used by individuals to cover mid-month cash shortfalls. The cash loans help individuals manage any shortfall in cash amount until the next payday.
The rules regarding payday loans vary from state to state in the US. Here, we will summarize payday loan regulations in the state of Wisconsin (WI). These regulations apply to all single payment and short term payday loans that are offered by lenders to the consumers.
Overview of Payday Loan Rules in Wisconsin, WI
Lenders that provide payday loans in the state of Wisconsin must be registered under the Section 138.14. The state allows payday loan lenders operating in the state to authorize electronic transfer of funds and accept checks from consumers.
Lenders are allowed to hold the checks for a certain period before presenting them to the bank. They are also allowed to wait a certain period of time before initiating electronic transfer of funds from the customer’s bank account upon consent as repayment of the loan amount.
Payday Loan Documents
Lenders are required to send certain documents to the borrowers in the format specified in the State of Wisconsin Department of Financial Institutions website. Below are some of the common documents that lenders must send to the borrowers.
- Pre-Loan Disclosure – The Pre-Loan Disclosure document contains disclosures that lenders are required to inform to the borrowers under Section 138.14(9g) (a)1., 2., 4., 5. and 6., Stats. The disclosure document must be send to the applicant before entering into any payday loan agreement. This form can be delivered to the borrower in either Spanish or English language as per the specification of the customer.
- Repayment Plan Offer – This prescribed document should be sent to the borrower in the case of default of the loan amount.
- Wisconsin Guide to Payday Loans – Payday lenders are required to furnish this document along with the Pre-Loan Disclosure document before entering into any loan agreement with the applicant.
Restrictions on Payday Loans
The state of Wisconsin allows lenders to extend up to $1,500, or 35% of gross monthly salary of the borrower, whichever is less. For instance, if the gross monthly salary of the borrower is $4,000, the lenders are allowed to issue a maximum of $1,400 (35% of $4,000). On the other hand, if the salary of the borrower is $6,000, the lender can extend up to $1,500 as loans.
According to subsection (12) (b) of the state legislation regarding payday loans, lenders are not imposed any limit on the interest rates that they can charge to the borrower during the loan term. Lenders are allowed to calculate interest rate at one-thirtieth of the monthly rate for each calendar day that the loan is unpaid. However, they cannot charge interest at a rate greater than 2.75% per month after the loan maturity date, except if a new loan is made. Moreover, the lender is not allowed to charge any additional fee to the customer in case the loan defaults.