Wisconsin Dept. of Agriculture Warns Farmers about Predatory Lending

Inside Subprime: July 16, 2019

By Lindsay Frankel

After years of low crop prices and mounting bills, farmers are often tempted to take out credit cards or loans from unregulated lenders. Wisconsin’s Department of Agriculture, Trade and Consumer Protection (DATCP) is warning farmers to use caution when considering alternative financial options that frequently fall into the category of predatory lending (e.g., loans with higher rates than traditional banks and much shorter repayment windows. Payday loans are an example of typical predatory loans).

“It’s the old statement when something appears to be too good to be true it usually is too good to be true,” said Frank Friar, an economic development consultant with DATCP.

The DATCP understands that farmers just want to stay in business. Times are particularly tough when spring planting season rolls around. This year, planting in Wisconsin and across the country have been severely delayed due to rainy weather—less than half of the average amount of corn was in the ground by the end of May—which has made the situation for farmers even more dire.

“People are desperate,” Friar said. “Their neighbors are planting. They want to plant. They want to stay in farming. If they don’t plant a crop, they’re going to be out of farming, and if they plant a crop and lose money well they’ve eaten up more of their equity or maybe more of their retirement funds.”

According to the American Farm Bureau Federation, farm debt is at a record high, and the US Department of Agriculture estimates it could rise 4 percent this year, to nearly $427 billion—the highest level of farm debt since 1982.

“As things get tighter and equity gets tighter, profits continue to stay down or there aren’t any profits maybe depending on the commodity,” Friar said. “We’ve reached a point that some lenders who approve lending say maybe we’re not helping you by lending you more money.”

But the high interest rates and short repayment periods associated with predatory lenders can actually threaten a farmer’s financial stability even more. Missed payments can quickly roll over into debt traps and lost assets. According to Friar, farmers can pay down debt one of two ways: from profits or selling assets. But if they sell their assets, “they’re out of farming,” says Friar, “and if there aren’t profits then they can’t pay their debt down.”

According to secretary-designee for the DATCP Brad Pfaff, “Agriculture contributes annually 88 billion dollars to our state’s economy. Approximately one in nine people that are working in the state that is related to agriculture in one way shape or form.”

Friar recommends that farmers seek regulated lenders and ask a lot of questions to ensure they understand the terms of any loan or line of credit.

Furthermore, the Wisconsin Department of Financial Institutions also recommends that struggling farmers review its list of registered payday lenders and loan companies. In addition, Pfaff recommends that farmers contact the Wisconsin Farm Center at DATCP directly if they are having “difficulty accessing financing or if they are considering an alternative lender.” 

The services provided by the Wisconsin Farm Center are free and confidential.

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including California, Florida, Ohio, Texas, and more.