Some payday lending companies have taken advantage of a loophole in Minnesota’s law that allows exorbitant interest rates. Between 2007 and 2011, the number of payday loans in the state ballooned from 172,000 to 338,000. Data from the Minnesota Department of Commerce indicate that the typical payday borrower takes out an average of 10 loans a year. In 2012, the city of Minneapolis alone accounted for more than $8.6 million of payday loans, at annual percentage rates of 400 percent and higher.
Most borrowers take out one payday loan to meet ordinary expenses, such as rent or groceries, but are driven to borrow again and again to pay off the existing payday loans that come due.
Minnesota’s largest faith communities are protesting the payday practices and agree that the current regulatory structure is inadequate. The Joint Religious Legislative Coalition -- comprised of Catholic, Protestant, Jewish, and Islamic faith communities -- intends to push for legislative reforms in the 2014 session. Possible changes include sewing up the loophole, which would lead to all payday loans being regulated in the same way, regardless of their category or license held; requiring payday lenders to convert multiple loans into conventional installment loans; and requiring payday lenders to ask about borrowers' military status to make sure they comply with a federal law that caps interest rates on military payday loans at 36 percent. Reforms also may hold payday lenders to a stricter underwriting standard; require them to disclose the true costs of loans to consumers; and explore ways for the state to encourage increased accessibility to affordable, short-term credit.