"I really feel like this is a good consumer protection bill," he explained. "They really basically have no limits as far as how much interest they can charge. I was really shocked." Interest rates could reach as high as 600 percent in a year if the loans are not paid off. Advocates explain consumers are typically charged an average of $15 per $100 if the loan is paid on time. Steven Schlein, spokesman for Community Financial Services Association, said the biggest misconception about payday loans is the interest, or the annual percentage rate issue. "Any short-term product is going to have a high APR and this is really relevant to a two-week loan," he explained. The APR gets higher when borrowers continue to roll over the loan, Schlein said. Typically, borrowers pay between $15 and $17 per $100 if the loan is paid back by the end of a two-week period, he added.

"Ninety percent of our customers are paying their loans," Schlein said. "So a very small percentage is getting into trouble. However, we want to address that." Many payday lenders have a no-fee extended payment plan, which allows clients to pay off their loan without the interest rate increasing. However, participants of this payment plan will not be allowed to borrow with the same lender again. He said it's a myth that payday loans are used primarily by poor people. According to CFSA, the majority of payday advance customers earn between $25,000 and $50,000 annually. "Our customer base is the heart of the middle class," Schlein said. "People with checking accounts, with steady income." Currently, members of the Senate are working on drafting a bill to regulate payday loans. During the last session, State Sen. Judy Robson, D-Beloit, was one of four senators who introduced Senate Bill 674.

According to the bill, which was never taken up by the Committee on Housing and Financial Institutions, "No payday loan provider may charge, contract for, or receive fees and interest for a payday loan in an aggregate amount that exceeds 5 percent of the amount of the payday loan." The bill continues, "no payday loan provider may make a payday loan with a term of less than 30 days." In a written statement, Robson stated she has been working on legislation to regulate payday loans for the last several years. "Payday loans exploit the people who least can afford them - the poor, senior citizens, the unemployed and people living from paycheck to paycheck," she wrote. "For the last several legislative sessions, I have worked independently and with other legislators to find an effective way to make sure that these short-term loans are exactly that - small loans to help someone get through a temporary pinch without getting sucked into a crippling cycle of debt." Nadine Gratz, a legislative analyst in Robson's office, said the senator is working with State Sen. Jim Sullivan, D- Wauwatosa, on reworking SB 674.

"One of the things we need is legislation that limits the number of times a loan can be rolled over," Robson wrote in her statement. "Without this protection, lenders can renew loans over and over - each time adding to the interest owed. Without controls, borrowers end up owing much more in interest payments than the amount they initially borrowed. In fact, the average annual percentage rate on a payday loan is a whopping 542.2 percent." The new legislation would make tracking payday loans more feasible. This in turn would prevent people from borrowing money from multiple payday loan places, Gratz explained.

In her statement, Robson went on to say, "It is possible to monitor compliance with the law by requiring lenders to enter all loans into a 'real time' database. This software can also give the state a firm basis to prosecute lenders who violate the law. Illinois and Indiana are already using this powerful tool."

Gratz said the bill is close to completion.

Sources: beloitdailynews.com