Let's End Predatory Pay-Day Loans

Millions of jobs were lost in the Great Recession.  When thinking about the problems facing those less fortunate, it is useful to think about how they earn money and how they lose money.  It is well known that wages for workers have remained stagnant over the last forty years and that incomes have generally plummeted for those with less than a college education. In tackling that problem, progressives in the state legislature have been advocating for a much needed increase in the minimum wage, and further education as part of the social compact with all Minnesotans.

What is less well known is how certain industries knowingly take advantage of the poor.  Despite their best efforts, many hard-working people can hardly make ends meet and turn to pay-day lenders – companies that provide people short-term loans up to $350 – in order to afford staples like food, clothing, rent or gas. Many of these same companies then demand that the entire amount be paid back with the next paycheck despite knowing full-well that barely 1 in 10 could possibly afford to in that timeframe.  In the process, they not only charge overdraft fees from when they try to withdraw money from customer’s accounts, but force customers to take out new loans to pay off old loans, also at an additional fee. People then fall victim to their inability to pay the ever growing loans every two weeks and their total debt explodes.

This is a predatory practice. Far from a “quick fix,” the average pay-day debtor finds that the loan extends over 5 months and the payments are way, way beyond the loans’ initial value.  The annual interest rate (APR) can effectively range from nearly 400 to 1,100 percent. At what point do you start calling these lenders the “loan sharks” that they are?  

Even worse, 75% of the 370,000 loans issued every year in Minnesota are to cover old debt. Considering how the number of pay-day loans in our state has doubled in the last five years, can we deny that far too many of our fellow citizens are trapped in a vicious cycle of debt promoted by the payday loan industry? Even religious organizations like the Joint Religious Legislative Coalition – which represents Catholic, Jewish, and Islamic groups – are calling for a crackdown on moral and ethical grounds.  

This problem is hardly unique to Minnesota.  The Federal Consumer Financial Protection Bureau is examining consumer complaints to decide whether to issue new regulations. Fifteen other states have gone so far as forbidding pay-day lenders from having physical store fronts. The industry’s problems are not caused by just a few bad apples.  

The simple truth is that we are not doing enough for our fellow Minnesotans if we increase their wages, only to permit others to exploit their poverty. As FDR said “necessitous men are not free men.” It is time that we forbid lenders from forcing people to pay back loans in unaffordable lump sums rather than in installments over time.  It is time we limit the total number of loans that pay-day lenders can push on debtors in a year.  It is time that we mandate that lenders verify borrower’s ability to pay and forbid issuing self-generated overdraft and loan renewal fees. With solutions that are so obvious, we can easily do more to stand up for the many hard-working Minnesotans, by putting an end to such predatory practices here in our great state.