Payday loan rate cap in advanced stages at Capitol - Exodus Lending - Exodus Lending

Payday loan rate cap in advanced stages at Capitol

By anika June 20, 2023

Payday loan rate cap in advanced stages at Capitol

MANKATO — Proposed legislation to cap interest rates on payday loans would be a huge step toward protecting consumers from predatory lenders, said Mankato’s organizer for the Minnesotans for Fair Lending group.

Sophia Hoiseth has tracked the 36% interest rate cap through Minnesota House and Senate committees this session.

The proposal is included in commerce omnibus bills in both chambers, she said, putting it in uncharted territory. That means it only needs final passage in a compromise bill.

“It’s the farthest it’s ever been in 10 years of advocacy on this issue,” she said. “We feel it’s time and Minnesotans recognize it’s time.”

Payday loans are typically short term and high interest. Minnesotans for Fair Lending and other advocacy groups describe the loans as predatory, putting borrowers in debt traps as they struggle to pay exorbitant interest rates.

The Center for Responsible Lending nonprofit, which advocates for a 36% or less rate cap, found Minnesota’s payday interest rate on a $300 loan was 200% in 2021. North Dakota and Wisconsin’s payday interest rates were upwards of 500%.

A total of 18 states plus Washington, D.C., already have the 36% or less caps on the books. Although the Minnesota Legislature’s push for a rate cap is driven by the DFL majority — Rep. Luke Frederick, DFL-Mankato, co-authored a House bill on the matter earlier this year — Hoiseth said the issue has been bipartisan elsewhere.

DFLers winning the House, Senate and governor’s office trifecta in November opened up the advocacy push for a statewide cap. Before, groups were lobbying cities to pass caps.

During a House Commerce and Finance Committee hearing Jan. 25, Paul Cassidy, director of government relations at Minneapolis law firm Stinson LLP, testified on behalf of Payday America in opposition to the rate cap. He said charges from short-term lenders “pales when compared to the average cost of an overdraft fee, credit card late fee, utility reconnect fee and merchant fees for bounced checks.”

Lenders would cease doing business in Minnesota if the cap goes through, he added, driving people to unregulated online loans instead.

Rep. Kurt Daudt, R-Crown, likened the bill to “picking on” one industry.

“The answer to this problem isn’t chasing folks who are actually helping people out of the state,” he said. “And that’s what will happen if we pass this bill.”

Ron Elwood, supervising attorney for the Legal Services Advocacy Project, which advocates for low-income Minnesotans, testified that the Pew Charitable Trust researched payday loans and found borrowers typically don’t seek out loans online when payday lending isn’t available.

“I think the internet argument is specious and it’s a non-issue,” he said.

Along with Frederick, Hoiseth noted Sen. Nick Frentz, DFL-North Mankato, has been supportive of the cap. She said she delivered about 40 postcards in support of the proposal to him from people in the Mankato area before a Senate hearing.

An alternative to payday loans, Hoiseth added, could soon come in the form of 0% interest loans available through advocacy groups. Exodus Lending, which helps Minnesotans refinance payday loans, will also continue to offer buy–out services to people in states where caps aren’t in place.

Minnesota’s 2023 legislative session is to adjourn by May 22.

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