Payday lenders’ high-interest fees targeted
By Bill Salisbury
St. Paul Pioneer Press
ST. PAUL — Payday lenders collected more than $82 million in fees from low- and middle-income Minnesotans between 1999 and 2012, according to a report released Tuesday by a group advocating new restrictions on the loans.
And the “wealth drain is trending upward,” Brian Rusche, a spokesman for Minnesotans for Fair Lending, said at a Capitol news conference.
In 2012 alone, 84 payday lending stores amassed $11.4 million in fees statewide, Minnesota Commerce Department data show.
Payday loans typically are low-dollar, high-interest loans that require borrowers to pay back in full on their next payday.
In Minnesota, a typical borrower takes out an average of 10 payday loans per year. The average loan is $380, and the average annual interest rate is 273 percent. One in five borrowers makes more than 15 payday loan transactions annually.
“All of this occurs because people fall into a debt trap,” said Rusche, executive director of the Joint Religious Legislative Coalition, one of 34 organizations in the fair-lending advocacy group.
Borrowers fall into a debt trap when they take out repeat loans because paying off previous loans made it harder to pay their monthly bills.
Although payday loan stores abound in low-income city neighborhoods, payday lenders in Minnesota make most of their money from suburban and outstate borrowers, the report found. Minneapolis and St. Paul accounted for just 17 percent of the lenders’ fees between 1999 and 2012, while they collected 57 percent of their fees in suburban cities and 26 percent in Greater Minnesota.
St. Paul topped the list, generating $9.9 million in payday loan fees during that 14-year period. Burnsville was second at $8.8 million in fees, followed by Robbinsdale, Bloomington and Coon Rapids with more than $5 million each.
In Greater Minnesota, payday lenders collected $5.2 million in Rochester during that period. Next were St. Cloud at $2.6 million, Moorhead at $2.2 million and Duluth at $1.2 million.
The fair-lending group supports bills moving through the Legislature to protect people from predatory loan practices. One would cap the number of loans a payday lender could make to a single borrower at four per year and take steps to ensure lenders don’t make loans that a borrower can’t repay.
The bill’s sponsor, Rep. Joe Atkins, DFL-Inver Grove Heights, said the 391 percent annual interest rate some lenders charge is “inexcusable.” But he said the state should not ban payday loans because some people need them between paychecks to make ends meet, particularly in emergencies, such as getting a car repaired to get to work.
State Commerce Commissioner Mike Rothman said his agency is calling for a law that would cap payday lenders’ annual interest rates at 30 percent.
Payday lending stores in Minnesota provide “safe and responsible places for folks to go to” for emergency loans, said Paul Cassidy, a lobbyist of Payday America. The alternatives for those borrowers are Internet, border-state and offshore lenders, and he said most customers who get into financial trouble are borrowing on the Internet.
Attorney General Lori Swanson recently filed lawsuits against eight Internet lenders that made payday loans charging illegally high interest rates.
Cassidy said in-state payday lenders do not charge exorbitant interest rates. He contended it’s “reasonable to charge someone $35 for two weeks to take out a $350 loan.”
Putting a four-per-year cap on the number of loans a lender can make to a single borrower is too restrictive, he said.
“Is 24 too many? There’s probably some room in between those numbers” for a reasonable cap, he said.
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The Pioneer Press is a media partner with Forum News Service, which includes the Echo Press.
Two companies in Alexandria are included in the Minnesotans for Fair Lending study of payday loans. The People’s Small Loan Company at 110 5th Avenue East collected $250,950 in payday loan fees from 2004-2012, and Viking Pawn at 403 Broadway collected $182,157 in the same time period. That’s a combined total of $433,107. The amounts are estimates based on fees permitted by Minnesota law.