The Joint Religious Legislative Coalition (JRLC) called for an end to predatory payday loan practices at the capitol last week. Its report, Payday Lending in Minnesota, recommended changes needed to the state's payday lending practices.
"The vast majority of payday borrowers are caught in a trap with the first loan," said Brian Rusche, executive director of JRLC.
Payday loans are short-term, high-interest loans that require full payback, usually on the date of the borrower's next paycheck. Lenders typically charge flat fees that equate to annual rates (APR) ranging from 391 percent to 1,170 percent.
According to data from the Minnesota Department of Commerce, the number of payday loans in Minnesota has more than doubled in the last five years. From 2007 to 2012, the number of payday loans issued in Minnesota leapt from 172,000 to 380,948. The majority of payday loans are issued to repeat borrowers who carry loan balances at costs that routinely exceed 400% APR.
The typical payday borrower takes an average of 10 loans per year, often spending substantially more on interest than on the original principal.
Rusche said 69 percent of borrowers take out their first payday loan to meet ordinary expenses like rent or groceries. "The debt-trap gets set; and it's impossible for most folks to pay off the last loan plus a new layer of debt. And then it's even harder to pay the rent."
Anna Brelje, 33, of Minneapolis, found herself caught in the payday loan debt trap as a young woman. "During a tough time after college, I had medical bills and credit card payments that I couldn't afford."
Brelje used payday loans over a two-year span. "I couldn't get out until I got a better paying job. As a consumer, I didn't know how expensive the fees really were. I just kept borrowing to pay back the loans on the previous paycheck. When I finally got into financial counseling, I learned that I had lost over $2,000 in fees."
Rev. Jay Carlson of Holy Trinity Lutheran Church in Minneapolis said, "Anna, others in my congregation, and our neighbors are hurting. There are five places to get payday loans within a half-mile of our church. We've decided to speak up. We're looking for ways to lessen the hurt predatory payday lending is causing."
Carlson hopes Holy Trinity can spark changes in the laws as well as neighbor-to-neighbor lending alternatives.
JRLC's report notes that a handful of payday lending companies have discovered a loophole in Minnesota's law that allows rates that are not only "shockingly usurious, but are designed to trap people into repeat borrowing and growing indebtedness."
JRLC spoke out to:
• Close the loophole. Regulate all payday loans in the same way, regardless of the category or license held by the business offering them.
• Cap the combined number of payday loans that can be issued to a borrower at four within a 12-month period.
• Protect military personnel and families. Require payday lenders to inquire about the borrower's military status in order to assure compliance with the federal law capping interest rates at 36% for payday loans issued to veterans or their families.
• Require sound underwriting. Hold payday lenders to underwriting standards and require verification that the borrower has a reasonable ability to repay the payday loan.
JRLC is co-sponsoring a community summit November 14 at Holy Trinity Lutheran Church in Minneapolis. The purpose of the summit is to build a coalition to support reform legislation in the 2014 session. See www.jrlc.org for details. Minnesota Community Action Programs, Jewish Community Action, AARP, Growth and Justice, Center for Responsible Lending, Legal Services Advocacy Project, Justice and Witness Team of the United Church of Christ, and others have already declared support.
The Joint Religious Legislative Coalition is an interfaith coalition representing the Minnesota Catholic Conference, Minnesota Council of Churches, Islamic Center of Minnesota and the Jewish Community Relations Council of Minnesota and the Dakotas.