Public Testimony Shines Spotlight on Significant Harm Caused by Triple-Digit Interest Loans
SAINT PAUL, MINNESOTA — Today, the House Commerce Committee approved bipartisan legislation to address a harmful cycle of debt caused by predatory payday lending. Rep. Jim Davnie (DFL-Minneapolis) presented HF 1501, which would cap the interest rate and annual fee on payday loans at 36%. Minnesota Attorney General Ellison testified in support of the legislation.
“HF 1501 is a common sense solution to predatory lending in our state,” said Rep. Davnie. “Hardworking Minnesotans deserve and need access to safe and responsible resources, not a system designed to take them in and milk their bank accounts over the long term, leaving them worse off and without funds to cover basic living expenses. It’s high time Minnesota joins those states that put reasonable limits on the rates of loans for struggling consumers.”
At a public hearing, a former payday borrower, advocates, and experts described the financial destruction caused by loans carrying 200% to 300% annual interest rates with unaffordable terms that create a cycle of debt. Sixteen states plus the District of Columbia cap annual interest on payday loans at 36% or lower to disrupt this cycle of debt. Congress passed a similar 36% cap on loans to active-duty military at the urging of the Department of Defense, after the DoD documented financial harm from payday loans so significant that it impacted military readiness.
Melissa Juliette told lawmakers about a personal experience with payday loans.
“Two and a half years ago, I found myself a single mother. I fell behind on all of my bills, including rent. So the late fees started to mount. I took out a payday loan” said Ms. Juliette.
“I took out $480 and was expected to pay back around $552. $72 in interest and fees. This seemed doable, I thought I could pay it back right away. However, the fees and my mounting bills were becoming out of control. This cycle lasted for months and I ended up with four payday loans total just to barely stay afloat.”
Other borrowers on fixed Social Security incomes submitted their written comments to the committee including the following:
“They really charge a lot of interest. It takes advantage of people who are desperately in need. It’s a penalty for needing help.” (81 years old, Ely, MN)
“When you pay your loan plus the exorbitant interest, you’re in the hole again, only worse than what you were before.” (75 years old, Prior Lake, MN)
“I borrowed $500 and had to pay back $1700. This struggle was very discouraging and depressing. Stop preying on the poor with such outrageous interest rates.” (66 years old, New Brighton, MN)
A younger borrower submitted the following written testimony:
“I believe it is only beneficial to have payday lenders cap their interest rate to 36% so that people like me, who are faced with a short-term financial crisis, don’t become victims of predatory lending practices and further deteriorate their financial wellbeing.” (34 years old, Minneapolis, MN)
“The stories you have heard today are not isolated nor unique. Rather they are reflective of a business model that is based on keeping people trapped in unaffordable debt,” said Center for Responsible Lending State Policy Director Diane Standaert in her testimony. “In Minnesota and nationally, the average payday loan borrower is stuck in 10 loans a year, and borrowers are typically trapped in these loans without a break. Additionally, 75% of all payday loan fees come from borrowers stuck in more than 10 loans a year. On the flip side, only 2% of loans go to borrowers who take just one loan out and do not come back for a year.
“Exodus Lending was founded as a response,” said President of Exodus Lending Eric Howard, who spoke in favor of the 36% cap. “We reach people in counties with the highest volume of active payday loans, we pay off their loan and they pay us back over 12 months at zero percent interest and zero judgment. We provide relief, we reveal the profound injustice of those caught in the debt trap, and we advocate for substantive policy change.”
HF 1501 now moves to the General Register.