Last week, Rep. Joe Atkins, DFL-Inver Grove Heights, introduced a new that would create rules for the payday lending industry in Minnesota. We must advocate for the passage of this legislation into law as it makes its way through committee, so that it may protect the states borrowers. Typically, payday lenders target people who must pay bills between paychecks and are struggling to do so. Payday lenders design the loan to be temporary, with high interest rates, and do so without looking at a borrowers personal finances. Interest rates on payday loans can reach up to 270, 300 or 400 percent annual rates. This service can be great for people who are aware that they will have to pay off the loan quickly and have the means to do so. If this is the case, then they should be fine. However, problems occur when borrowers are not financially stable or are uncertain about their future checks and bills. If a borrower takes out one of these payday loans and does not plan out a payment schedule that will cover it quickly, the high interest rates and delayed payments can be If someone gets one of these loans and doesn’t plan out a quick payment schedule, delayed payments and high rates can cripple their finances.
After a brief period of time, the high interest rates of the payday loan begin to go up and turn into even more debt. The interest rate is often much higher than traditional bank loans. It is easy to see how these loans can be addictive and very risky for people who are struggling to pay bills and make ends meet. There are also issues with the way that payday lenders choose to treat their borrowers. Debt collectors that are affiliated with these companies have a history of harassing customers to get them to pay their debts. This problem has only gotten worse in the state of Minnesota. Many states have been able to move forward with laws and regulations to prevent borrowers who have been misinformed. However, other states, like Minnesota, have done very little to regulate the payday lending industry. Because of this, distribution of payday loans has doubled in the past 5 years in this state. Atkins has thankfully provided Minnesota with a solution to the payday loan problem. If this legislation is passed, it would protect consumers by enforcing a ban on giving loans that an agency knows that particular borrower will be unable to pay back. The bill will also prevent payday lenders from offering loans to borrowers more than 4 times a year. Finally, it would regulate the way that debt collectors do their jobs and ensure fair treatment of borrowers. Some were quick to criticize these rules of course. Several lawmakers said that these laws would remove the payday lending industry from the state. They also feared that it would leave many Minnesotans without any form of financial emergency options. However, there are several other options for borrowers rather than payday lending. Small community banks typically are very receptive to working people who need short term assistance.