Payday lending should be illegal. That’s what we’ve been preaching for years. Why? Because lenders intentionally design their products to trap individuals experiencing financial hardship.
Unfortunately for Minnesotans, payday lending is legal in Minnesota. Why? Because our elected officials in Minnesota allow it to be. Fortunately, we have the power to change unfair laws. Here’s what we’re up against, and what we’re doing to stop the debt trap.
In Minnesota, consumer small loans up to $350 are regulated on a tiered fee structure outlined in Minnesota Statute 47.60. Additionally, for loans between $350.01 and $1,000, the Office of the Minnesota Attorney General says state law allows up to 33% interest plus $25 in fees. When translated to an annual percentage rate including the fees, licensed lenders legally charge triple-digit interest rates. Based on the most recent data from the Minnesota Department of Commerce, licensed lenders report an average APR of 218% in 2018.
Proponents contend that APRs are not fair measures of short-term loans. But for the majority of borrowers, unaffordable payments extend repayment to months or even years. In 2018, 59% of borrowers took out five or more loans that year, 35% took out more than 10, and 10% more than 20. Cumulatively, those “short-term” loans cost borrowers more than $9,066,548 in interest and fees in 2018 alone.
That’s not short-term financial relief. It’s a long-term debt nightmare.
Worse still, many lenders operate without proper licenses and charge higher finance charges. They lend without a license, with one from states with weaker regulations, or by operating from another country or under American Indian tribal authority. With the latter, lenders claim loans are subject only to the laws of the home country or the tribe and that Minnesota state laws do not apply to them. To be clear: Minnesota law says that all lenders that make loans to borrowers in Minnesota must comply with rate caps and be licensed.
Minnesota can join sixteen other states plus D.C. in standing up for borrowers by enacting an interest rate cap of 36% or less, inclusive of all fees. There is already a nationwide 36% cap for active-duty military members. Until we get the same protection in Minnesota, Exodus Lending will continue to refinance payday loans interest-free. Why? Because 0% is a lot better than 218%, and because no one should struggle under the weight of predatory debt.
We also encourage borrowers to contact the Minnesota Department of Commerce to confirm the license status of lenders. If needed, they can file a complaint with the Office of the Minnesota Attorney General. Complaints drive investigations undertaken by the Office, which can help stop the worst lenders.
Together with state agencies, supporters like you, and every newly enrolled participant, we are one step closer to our dream: changing payday lending should be illegal to payday lending is illegal and unwelcome in Minnesota.
We’re not alone in our efforts. Here are some other pushes for change:
Exodus Lending E-Newsletter: February 2020