Recent moves by the Minnesota Legislature – moves that were dead set on imposing reform on the payday lending industry fell by the wayside at the end of 2014. In fact, the proposed reform actually failed to get going at all at the beginning of 2015. This turn of events represents a significant set back for a group of religious and community advocate groups that had their eye on demanding concessions from payday lending companies. These folks believe that when people get small dollar loans for a few weeks that the payday loan customers wind up in a never ending spiral of debt due to loan fees and late fees.
Last year, the Minnesota House, with the DFL pulling their strings, passed a bill that was backed up by the Minnesota Chamber of Commerce. Lobbyists and advocates for the payday loan industry, however, were not able to reach a place of common ground, so the Senate passed. Fast forward to this year and the different parties involved were not even talking about the bill, with no hearings being held to date.
Commerce Commissioner Mike Rothman said, “I’m still committed to this. This goes to my goals for building [family] financial capability. The dialogue [between the industry and consumer groups] got difficult when it came to the interest rate and the number of loans. Families do need affordable credit. It’s troublesome when they are caught in debt traps.”
The group of payday lending companies, led by the successful Payday America company, with 15 locations owned by the same family that owns Pawn America, have pushed back against changes that would effectively limited how many loans a borrower could take out and that significantly lowered interest rates to cap out at only 30 percent. A Payday America executive, Chuck Armstrong, along with Paul Cassidy, a lobbyist for the company indicated that the proposed bill would essentially destroy the Minnesota short term lending industry. The industry has put forth a concession that was to put a common reporting system into place, so that borrowers would not be able to successfully apply for loans if they had existing loans open with other lending companies.
Armstrong said, “We don’t want to keep people in a debt spiral. “Oftentimes it takes more than one loan cycle for a family to get out of debt. Our opponents are manufacturing hysteria.”
Payday lending companies always check to make sure that borrowers have a form of income. Currently, there are no caps in Minnesota to put limits on the volume of rollover loans that a person has, which can have an effect on compound interest rates. With the average payday loan being for roughly $300, the loan fees figure in somewhere around $26.50. Some critics say that this amounts to an APR of over 225 percent. However, it is important to note that most borrowers tend to pay off their loans on time, so the loan fees can only be considered a one-time charge and not a fee that compounds interest on an annual basis.
Even though there is not a lot of action taking place with regards to the proposed sanctions as of right now, payday lenders probably are not completely in the clear in Minnesota just yet. The CFPB still has its eye on imposing reform on the short term lending industry. However, perhaps alternative financial service providers, like payday lenders, can concentrate on simply offering their services to the people who really need them for the time being; instead of focusing on yet another legal fight with parties who seem to have nothing better to do than to limit the financial choices available to lower and middle income households.