Minnesota State Rep. Joe Atkins (DFL-Inver Grove Heights) has introduced legislation to regulate the state's payday lending industry. If passed, it would ban lending to consumers who are unable to repay on time. The law also would bar payday lenders from offering loans to the same individual more than four times per year, and would increase scrutiny of collection methods used by these lending services.
These types of loans often target people who struggle to make ends meet between paychecks, writes Ronald Dixon in an opinion piece. The loans, which do not usually consider a borrower’s finances, are designed to be temporary, with high interest rates that can reach as high as 400 percent annually. Issues arise when consumers cannot pay off the loan within the usual two-week deadline. Fees and interest rates from delayed payments can make consumers worse off than before. Debt collectors that work with payday lenders are also known for harassing consumers.
Many states have implemented regulations to protect misinformed consumers from payday loans, but Minnesota has done little to control the industry. This may be why distribution of these types of loans has doubled in Minnesota in the past five years. In supporting Atkins' bill, Dixon writes that regulations to protect consumers do not place unsustainable costs on businesses. He also points out that consumers have several alternatives to payday lending, such as smaller community banks.