End predatory lending in Minnesota now
Minnesota lawmakers have a chance to stop a vicious business model designed to drain every possible dollar from the bank accounts of their customers: high-cost predatory payday lending.
The House position on SF2744 includes a cap on the annual interest rates on payday loans at 36% — a reform already in place across the country in 18 states and the District of Columbia.
As the CEO-designate of Arise Community Credit Union — a Black-led credit union that will be opening its doors later this year — I understand lending. And I understand when lenders are failing to serve borrowers in good faith and are instead making loans that customers cannot afford to pay off — intentionally.
That is what payday lending is all about.
The Minnesota Department of Commerce recently reported that the average annual interest rate for payday loans in our state has actually risen substantially, from 197% to 220%. No, that is not a typo. These interest rates are outrageous, not even in the realm of reasonable.
And while payday lenders claim the annual rate does not matter on their loans because they are short term, what they don’t say to their customers or to lawmakers, is that the average number of loans per year in Minnesota is six, and the Consumer Financial Protection Bureau reports that payday lenders collect 75% of their fees from borrowers with 10 or more loans per year. That is all the evidence we need that payday lending is not meant to be the emergency loan they say it is. The long-term cycle is how it was designed to work.
And that cycle is nothing short of financially devastating to borrowers as they try and often fail to break free of the cycle, at the worst resulting in bankruptcy, but also simply coming up short on daily living expenses like food, rent, utilities and medicine.
Borrowers see overdraft and insufficient funds fees piled on as the lenders extract directly from their bank accounts, which often results in the loss of their account altogether. And that’s a hard way to live in our society.
The vision of our organization is to address the harmful effects of systemic exclusion, extraction, and disinvestment in North Minneapolis and other neighborhoods in Hennepin and Ramsey counties, helping free members from high-cost debt. We seek to help them gain control over personal finances and achieve economic well-being.
Few things have been as destructive in our community as these usurious payday loans with unconscionable interest rates.
The Financial Health Network’s Annual Health Spend Report in 2021 found that Black families are nearly four times and Latinos three times more likely to take out payday loans than white families.
Exodus Lending — a nonprofit that refinances payday loans at 0% APR — found that in Minnesota, of the 33 licensed payday lenders operating in our state in 2021, 76% of them (25 of 33) operate in qualified low-income census tracts. These lenders are clearly and purposefully targeting low-income communities, predominantly made up of people of color, for their predatory services.
Arise Community Credit Union was born from a desire to provide financial products and services to the unbanked and underbanked residents of the community through a financial cooperative committed to Black leadership and to place focus on economic development in its community of origin.
Access to economic resources will provide an opportunity for individuals to manage health, housing, education and other needs while breaking the cycle of poverty and economic struggle. The rate cap provision being considered at the Legislature will help to ensure that predatory lenders do not continue to make huge profits based on a model that takes advantage of people and keeps them in a vicious downward cycle of spiraling debt.
Lawmakers should listen to the former borrowers who suffered under payday lending and found much better ways of meeting shortfalls once out of the trap. According to Emerson College Polling, the vast majority of Minnesotans — 79% — support a 36% rate cap, including majorities of all political parties. Support is even greater among those who have had payday loans or know someone who has: 85%! These are the folks that know best the financial devastation this pernicious product causes.
Get it done: There is no excuse for letting such a destructive practice continue to harm Minnesotans.
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