DFL legislators advance bill to limit interest rates on payday loans - Exodus Lending - Exodus Lending

DFL legislators advance bill to limit interest rates on payday loans

By anika June 20, 2023

House legislators on Wednesday advanced a bill to limit sky-high interest rates on payday loans, which advocates say often trap borrowers into a cycle of debt. 

“These lenders make it their mission to target people who don’t have access to a bank account — or who don’t have access to a traditional loan — and they take their hard earned money. It’s theft and entrapment,” said Vienna Wilson, board chair of Exodus Lending, which helps Minnesotans refinance payday loans. 

Payday loans are short-term loans, often for $500 or less. If the bill passes, Minnesota would join 18 states and the District of Columbia in capping interest rates at 36% or lower. In 2021, the average interest rate for a payday loan in Minnesota was 200%. The practice was illegal in Minnesota until 1995. Advocates believe the loans are predatory: Wilson said payday lenders are “legal loan sharking.” 

“If you cannot work your business with a 36% profit, maybe you don’t really have a business. We should not be legalizing robbery,” said Rep. Ginny Klevorn, DFL-Plymouth. 

Payday loans are often marketed as “one-time only” loans for borrowers looking to survive until their next paycheck. However, data from the Minnesota Department of Commerce shows lenders reported an average of nine loans per borrower in 2021. 

Consumer advocates say payday lenders often set up business around low-income neighborhoods and communities of color. Black households are almost four times as likely and Latino households are more than three times as likely to take payday loans than white households, according to a 2021 report by Financial Health Network. 

Payday America, a Minnesota lender, said capping interest rates would eliminate access to payday loans in the state, forcing Minnesotans into the unregulated online market. 

“Lenders simply will not do business in Minnesota under this pay cap,” said Paul Cassidy, a lobbyist for Payday America. He showed a video of customers saying they could not survive without the loans. 

Republicans voiced support for the lenders’ view that the bill would take away access to loans that people need and drive people to online loans. 

“You will expose Minnesotans to greater risk and greater fees and greater turmoil by taking this tool away from them,” said Rep. Kurt Daudt, R-Crown. 

A Pew Charitable Trust study, however, found regulated states saw a large decrease in payday loans, and that borrowers do not seek online loans — they’re more likely to cut back on expenses and try alternative ways to borrow money. 

Rep. Carlie Kotzya-Witthuhn, DFL-Eden Prairie, said that if the bill passes, she plans to introduce a bill that will “fill the gap” left by payday lenders by giving people access to cheaper loans.