Payday lenders, criticized for trapping borrowers in a cycle of debt, are being targeted by a coalition in Minnesota that aims to restrict the number of loans such businesses can make to a single customer during the course of a year. A proposal in the state House would set that limit at four loans per year per customer. Similar legislation in the Senate established an eight-loan cap, with a 45-day waiting period in between loans. Both bills are likely to see action on the floor, but it is uncertain whether a compromise is possible.
Twenty-two states already ban or heavily regulate payday lending, and the Joint Religious Legislative Coalition (JRLC) is leading a similar effort in Minnesota. “What bothers us ... " according to JRLC executive director Brian Rusche, is that the product "traps people over time in these exorbitant rates.” Minnesotans took out 381,000 payday loans in 2012 at 84 outlets, double the number taken out in 2007. Rusche estimates that the average payday borrower in state takes out 10 loans a year, of about $380 each. Fees and interest for those loans cost customers $397.70.
Some lenders argue that they offer extended payment plans that help struggling borrowers break the cycle by converting to an extended installment loan. Rusche said that his coalition hopes to work with the payday lending industry to develop a joint solution.