States all over the country are attempting to introduce their own type of regulation pertaining to the payday loan industry. One of them is the state of Minnesota, which previously tried to regulate the bad credit loan industry but failed after intense lobbying efforts.
It has been reported that Minnesota legislators will introduce legislation in 2016 to curtail payday loan lending. However, many political observers and state officials say it won’t be as simple as just currying up enough votes.
This isn’t the first time that The Gopher State proposed legislation to curb payday loan establishments. In 2014, lawmakers put forward legislation that would limit the number of payday loans consumers can take out to just four and place a cap on interest rates. The bill’s supporters said the average annual interest rate on short-term personal loans for people with bad credit is 260 percent, while the average customer takes out about 10 loans per year.
Unfortunately for bill sponsors, there was immense lobbying initiatives. Payday America, the biggest bad credit loan lender in the state, spent more than a quarter of a million dollars to quash the bill. Payday America is one of the top six “Big Lenders” thanks to their physical store locations and abundance of eager affiliates that get compensated very well.
A specific proposal has yet to be created, but State Representative Joe Atkins noted that any new regulatory reforms wouldn’t “be a disaster.” At the same time, however, he concedes he doesn’t “want to put them out of business. I just want to put reasonable interest rates in place.”
Atkins, who was the sponsor of last year’s payday loan lending reform bill, explained that consumers have to take action, too. He argued that Minnesotans must look at alternatives prior to applying for a bad credit loan: ask for an advance on your paycheck from your employer, request a payment plan with a creditor or seek out aid from non-profit organizations.
In the meantime, Minnesota may look at how other neighboring states instituted reforms. By studying other states’ reforms to the payday loan niche, it could offer guidance for lawmakers to create the best balance: protection for consumers and allowing lenders to keep their doors open.
It won’t be too difficult to find out what states have done. In most cases, there have been three primary changes: a cap on interest rates, allowing consumers longer times to pay back the loans and limiting the number of payday loans consumers can take out.
Federal Consumer Finance Agency Taking Action
At the federal level, one agency is looking to impose extensive reforms on the bad credit loan business.
The Consumer Financial Protection Bureau (CFPB), led by Richard Cordray, submitted a proposal this past March that would cap interest rates, restrict lenders from accessing customers’ bank accounts to collect payment and reduce the amount of excessive fees.
“The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans,” said CFPB Director Richard Cordray in a statement. “These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.”
Ostensibly, an overwhelming number of U.S. consumers are in favor of such regulation, says one survey.
Pew Charitable Trusts found that 75 percent of respondents agreed that payday lenders should be more regulated. Only 10 percent of survey participants maintained a positive opinion regarding payday loan providers.
The state of New York
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