Last week, Doyle struck 33 words from a sentence in Senate Bill 530, a measure designed to put shackles on the payday loan industry. He left only the words, “No licensed lender may make a title loan” and the period.

The bill was intended to end the reign of predatory auto title lenders. 

But now the law, which takes effect Dec. 1, also affects consumer credit, or installment lenders. Those include chains such as American General, Riverside Finance and Security Finance; and the independent Motor Credit Corp., 2823 Lathrop Ave.

The veto eliminates the ability to borrow money with a vehicle as collateral — except to buy the vehicle.

Buhler, vice president at Motor Credit, said the law will kill a whopping 65 percent of Motor Credit’s business and may well put them out of business. 

Buhler, whose father, William, owns Motor Credit, said there’s a vast difference between installment lenders and the very short-term, high-rate auto title lenders.

“We’re not a predatory lender,” he said. Motor Credit makes one- to five-year loans at interest of 15 percent to 24 percent, Buhler said. Although certainly higher than a bank or credit union might charge, the rates are far from the rapacious ones cited by consumer advocates who wanted title loans banned.

Buhler said Motor Credit makes closed-end loans. The payments reduce the principle — unlike a credit card minimum payment, which may not touch the principle.

He said an auto title lender might give one to three months to repay a loan, at hundreds of percents of interest, with the vehicle hanging in the balance.

“That structure and pay structure is so far from how we do business, it’s laughable.”

Unfortunately for the consumer credit companies, they operate under the same license as payday lenders and auto title lenders that Doyle was after.

With his veto, the governor included them all. 

Unintended consequences?

Doyle’s stated rationale was to protect low-income people from losing “an essential asset for working families” to the true auto title industry. 

“I believe that auto title loans are an example of some of the worst predatory lending practices,” he said in his veto message. 

But Buhler predicted that, denied an auto installment loan, “The consumer will be forced to go to the payday lender.”

John Rabenold, spokesman for Cincinnati-based Check ‘n Go, also said that is likely. 

“We don’t offer the title loans,” he said, “but certainly, with the prohibition on those, people will go somewhere else. ... So, I imagine companies in short-term credit will get those customers.”

Rabenold insisted there is a difference between interest, or a fee for getting cash, and annual percentage rate, or APR. However, he said a 15 percent two-week fee would officially be calculated as 391 percent APR.

Buhler said he’s been told the going payday loan fee in Racine is $22 on $100 borrowed for two weeks, or about 570 percent APR.

Ed Heiser, spokesman for the consumer financial services industry, said Doyle used a “blunt” veto pen to wipe out an entire industry when the Legislature had found a compromise.

“With one stroke of his veto pen, he has communicated an incredibly anti-business attitude on the part of Wisconsin,” said Heiser, an attorney with Whyte Hirschboeck Dudek in Milwaukee.

He added, “This is really anti-business, and it’s anti-consumer.”

Repos not the goal

Buhler said Motor Credit’s niche is to make loans too small for banks to bother with, to people with shaky credit, or those who have no house to provide a line of credit. He said their biggest possession and source of credit is often their car. 

Buhler said Motor Credit might have 12 to 15 repossessions in a bad year and five to seven in an average year. Any repossession, he said, “turns into a loss for the company, so we try to work it out.”

During debate on the bill, a Legal Aid Society spokesman cited a client who borrowed $1,100 but ended up paying $4,600 over 19 months. 

Buhler responded, “If someone borrowed $1,100 from us at 18 percent interest, their balance would be zero after 18 months ... and they would pay $163.24 in interest, for a total of $1,263.24.”

The new law makes no such distinctions.

And Buhler worries about the fallout. “It’s going to affect consumers in the way they obtain money, and it’s not going to help them,” he said.

“They knocked out the (lenders) that do it the right way.”