Urge Legislators to End Usury Loophole & Protect Minnesotans with a 36% Interest Rate Cap on Payday Loans
The Problem:
Payday loans are small-dollar, high-interest loans requiring full payback on the borrower’s next payday. They typically carry triple-digit annual interest rates, are due in full on a borrower’s next payday, require direct access to a borrower’s bank account, and are made with little or no regard for a borrower’s ability to repay the loan. Because of these features, borrowers often cannot both repay the payday loan and meet their other obligations without having to quickly re-borrow.
Payday lenders claim that payday loans are for unexpected emergency expenses, but the reality is that nearly 70% of payday borrowers first used payday loans to cover ordinary, expected expenses. As such, a triple-digit interest payday loan is not a solution for meeting ongoing bills. In Minnesota, the typical payday loan borrower takes out ten loans per year. By the end of twenty weeks, an individual will pay $397.90 in charges for a typical $380 payday loan. Payday loans don’t solve financial pressures; they make it worse.
Repeat lending is based on a succession of new loans, but it does not generate new resources for the borrower. Each loan is issued separately, with the balance due on the borrower’s next payday. Borrowers often need the next loan because paying off the previous loan made it harder to pay the month’s bills. In most cases, after 10 loans, the fees paid by the borrower will exceed the original loan amount. By design, payday loans trap consumers in a downward spiral of debt.
Church Teaching:
Pope Francis has denounced usury as contrary to human dignity and a “dramatic social ill” because it takes advantage of another person in desperate financial situations.
Usury, or the practice of lending money at exploitatively high interest rates, has become increasingly widespread over the past decade as families struggle with economic insecurity. And though most states have laws regulating usury and capping excessive interest rates, these laws do not necessarily address all exploitive and abusive lending practices.
If laws and regulations fail to address all abusive lending practices that exist, then Catholics must oppose usurious practices that exploit people’s financial problems for profit. The mere presence of a willing lender and willing consumer does not make a practice right or promote human flourishing.
Your Action:
Encourage your State Senator to support the payday lending reform that would place a 36% cap on the total interest and fees that can be charged in connection with a payday loan.
The 36% rate cap is derived from the Military Lending Act. A 36% rate also gives lenders an incentive to offer longer term loans with a more affordable structure and to avoid making loans that borrowers cannot afford to repay.
There is no reason why all Minnesotans should not have the same protection against excessive interest rates on payday loans that are provided to servicemembers. This reform to lending practices in our state will create a set of laws that encourage businesses to participate in healthy lending practices and will ensure that borrowers can take out loans without getting stuck in too deep a debt trap.
Urge Legislators to End Usury Loophole & Protect Minnesotans with a 36% Interest Rate Cap on Payday Loans
The Problem:
Payday loans are small-dollar, high-interest loans requiring full payback on the borrower’s next payday. They typically carry triple-digit annual interest rates, are due in full on a borrower’s next payday, require direct access to a borrower’s bank account, and are made with little or no regard for a borrower’s ability to repay the loan. Because of these features, borrowers often cannot both repay the payday loan and meet their other obligations without having to quickly re-borrow.
Payday lenders claim that payday loans are for unexpected emergency expenses, but the reality is that nearly 70% of payday borrowers first used payday loans to cover ordinary, expected expenses. As such, a triple-digit interest payday loan is not a solution for meeting ongoing bills. In Minnesota, the typical payday loan borrower takes out ten loans per year. By the end of twenty weeks, an individual will pay $397.90 in charges for a typical $380 payday loan. Payday loans don’t solve financial pressures; they make it worse.
Repeat lending is based on a succession of new loans, but it does not generate new resources for the borrower. Each loan is issued separately, with the balance due on the borrower’s next payday. Borrowers often need the next loan because paying off the previous loan made it harder to pay the month’s bills. In most cases, after 10 loans, the fees paid by the borrower will exceed the original loan amount. By design, payday loans trap consumers in a downward spiral of debt.
Church Teaching:
Pope Francis has denounced usury as contrary to human dignity and a “dramatic social ill” because it takes advantage of another person in desperate financial situations.
Usury, or the practice of lending money at exploitatively high interest rates, has become increasingly widespread over the past decade as families struggle with economic insecurity. And though most states have laws regulating usury and capping excessive interest rates, these laws do not necessarily address all exploitive and abusive lending practices.
If laws and regulations fail to address all abusive lending practices that exist, then Catholics must oppose usurious practices that exploit people’s financial problems for profit. The mere presence of a willing lender and willing consumer does not make a practice right or promote human flourishing.
Your Action:
Encourage your State Senator to support the payday lending reform that would place a 36% cap on the total interest and fees that can be charged in connection with a payday loan.
The 36% rate cap is derived from the Military Lending Act. A 36% rate also gives lenders an incentive to offer longer term loans with a more affordable structure and to avoid making loans that borrowers cannot afford to repay.
There is no reason why all Minnesotans should not have the same protection against excessive interest rates on payday loans that are provided to servicemembers. This reform to lending practices in our state will create a set of laws that encourage businesses to participate in healthy lending practices and will ensure that borrowers can take out loans without getting stuck in too deep a debt trap.