Predatory payday loans exploit low to middle income populations. People working for minimum wage who are struggling to meet basic expenses or who are suffering from health crises, job losses or other woes can turn to payday loans.
They may not have access to credit or have been refused by banks. They borrow small loans to get their next paycheck, with local interest rates of up to 259% per year according to the Minnesota Department of Commerce. They have to repay the loan by the next pay period, as 80% of borrowers are not able to repay the loan as quickly. A cycle of indebtedness ensues with new fees added to each new loan intended to pay off the previous loan.
Blue Earth County payday loans per capita are among the highest in Minnesota. Mankato’s payday loan company collected over $ 196,884 in fees last year, money that could be better spent in our community.
Communities are mobilizing to stop payday loans and offer alternative solutions. Moorhead City Council members defended Minnesota’s first law capping interest rates at 33%. Moorhead has a university and a similar population to Mankato. Could our city council also adopt an interest rate cap of 33%?
South Dakota adopted a 36% interest rate cap with a positive impact on their state. A wide variety of businesses, community nonprofits, and reputable financial services such as credit unions have replaced payday lending companies. Seventeen other states have passed similar laws.
Minnesota Senator Tina Smith co-sponsored the Veterans Bill S.2833 and the Consumer Credit Act, which would put a 36% rate cap on all payday loans. Please thank Senator Smith and ask Senator Amy Klobuchar to co-sponsor this bill.