Wis. SC will take on payday loans

MADISON, Wis. (Legal Newsline) - The Wisconsin Supreme Court will review a case questioning whether annualized interest rates in excess of 1,000 percent per year for a short-term loan are per se "unconscionable" under the state's Consumer Act.

Last week, the Court voted to accept a total of eight new cases for review, including Payday Loan Store of WI v. Mount.

Between August 2008 and January 2009, Jesica Mount of Onalaska entered into multiple contracts with Payday Loan Stores of Wisconsin Inc. for short-term personal loans. The annualized interest rates on the loans varied from 446 percent to 1,338 percent.

In December 2009, after Mount failed to make required loan payments, Payday initiated a small claims action against her. Mount answered the complaint, denying liability and counterclaiming for violations of Wisconsin's Consumer Act.

Mount moved for summary judgment, attaching 20 loan agreements and Mount's affidavit describing the loans she entered into and their interest rates.

A lower court determined that the interest rates were unconscionable and granted summary judgment to Mount. Payday appealed.

According to the state Court of Appeals' certification to the state's high court, the issue in this case is whether the annualized interest rates for Payday's loans to Mount were unconscionable under state law.

The appeals court says resolving the issue requires answering two questions: (1) Does the WCA preclude a determination that a particular interest rate is unconscionable? (2) If it does not, what is the legal standard to apply and what type of evidence is necessary to establish unconscionability?

Under state law, a court may refuse to enforce a consumer credit transaction if it determines, as a matter of law, that any aspect of the transaction is unconscionable.

The state's Consumer Act provides a series of guidelines for courts in determining whether a consumer credit transaction is unconscionable, including, among other things: whether a practice unfairly takes advantage of the lack of knowledge, ability, experience or capacity of customers; whether those engaging in the practice know of the inability of customers to receive benefits properly anticipated from the goods or services involved; and that there exists a gross disparity between the price of goods or services and their value as measured by the price at which similar goods or services are readily obtainable.

In this case, Payday contends that no interest rate is per se unconscionable under the state's Consumer Act because the act states that there is no limit on finance charges. It also contends that, even if the law allows a finding that a particular interest rate is per se unconscionable, the summary judgment material in this case was insufficient to support that determination.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.