Gov. Jim Doyle single-handedly banned auto title loans in Wisconsin on Tuesday.
The governor signed a bill that will regulate payday lending for the first time after years of unchecked growth by the industry. But he creatively used his partial veto power to rewrite the law, banning auto title loans and making other changes to protect consumers from what he called "predatory lending practices."
Lawmakers approved the plan last month, but decided not to ban the short-term loans that are secured by a car title after key senators objected in the final weeks of the session. Instead, the bill that cleared the Senate and Assembly called for limiting auto title loans to one per customer for no more than 50 percent of the car's value, excluding fees.
Doyle vetoed sections of the bill to prohibit licensed lenders from issuing auto title loans when the law goes into effect Dec. 1. In a veto message, he called them "an example of some of the worst predatory lending practices."
"Auto title loans can result in individuals losing their vehicles due to failure to make timely payments on relatively small loan amounts, putting at high risk an asset that is essential to the well-being of working families," the governor said.
Doyle aides said they did not know how many lenders would be put out of business in coming months.
The new law allows payday loans limited to $1,500 or 35 percent of the applicant's monthly income, whichever is less. Borrowers can roll the loans over only once. Payday loan stores can't be located within 1,500 feet of one another or 150 feet of residential areas.
Lawmakers approved those provisions, and Doyle left them intact. But he used his partial veto power to cross out several other parts of the bill.
Doyle eliminated a section of the bill that defined payday loans as being 90 days or less. He said that definition created a loophole where lenders could offers loans for a term of 91 days to avoid regulation. Doyle directed the Department of Financial Institutions to develop rules to ensure all payday lenders are covered.
He also removed language that allowed lenders to charge up to 2.75 percent interest per month after the maturity date of loans. No interest will be allowed under the governor's change.
Another eliminated provision would have allowed lenders to give customers behind on their loans an option of paying them off through a repayment plan only once a year. Doyle said customers should be given the repayment option - in which they pay off the balance in four installments - more frequently.
The vetoes will likely renew debate over whether the governor has too much power to rewrite laws without respecting the will of the Legislature.
Voters in 2008 approved a constitutional amendment to prohibit governors from cobbling together words and numbers from multiple sentences in bills to create new policies and taxing levels, which was known as the "Frankenstein veto."
But the amendment still left Wisconsin governors with the unique ability to cross out individual words, sentences or paragraphs to change the meaning of bills.
That allowed Doyle on Tuesday to eliminate three parts of a sentence that totaled more than 80 words to create a new sentence banning post-maturity interest on payday loans. To ban auto title loans, the governor eliminated parts of a sentence and several other sections to declare, "No licensed lender may make a auto title loan."
Rep. Gordon Hintz, D-Oshkosh, praised the governor's actions. He noted that 59 members of the Assembly voted for the original bill to ban auto title loans before that provision was stripped by the Senate.
"To a lot of us, it was unconscionable that we would endorse the practice of leveraging one's vehicle as an acceptable way to access credit. I think the governor recognized, rightly so, that many in the Legislature thought that needed to be reined in," he said. "Today is a big win for consumers and communities in Wisconsin."
(Copyright 2010 by The Associated Press. All Rights Reserved.)