A second — introduced by Rep. Steve Simon, DFL-St. Louis Park, and Sen. Linda Higgins, DFL-Minneapolis — would have limited interest rates for all loans in Minnesota to a 36 percent Annual Percentage Rate (APR) and allowed for borrowers to pay back loans incrementally – something not currently offered by lenders.
Local face of payday lending
The failed bills were vigorously opposed by the owner and CEO of Payday America, Brad Rixmann. Testifying in 2008, he told a legislative committee that proposed regulations would push him out of business and force borrowers who depend on his services to “turn to illegal and unregulated sources of ready cash.”
Rixmann is the local face of payday lending. He declined to be interviewed for this story. His company is the small-loan subset of the larger Pawn America. With at least 15 locations in Minnesota, Payday America is the biggest payday lending company in the state.
Rixmann has donated increasingly to Minnesota political campaigns, giving more than $150,000 in 2011 and 2012 for state and federal races. His company also registers lobbyists to work on issues at the state level, according to the Minnesota Campaign Finance and Public Disclosure Board. Although he’s contributed to both Republican and Democratic campaigns, the majority of donations head to Republicans.
In his testimony, Rixmann said the regulations in place were effective and that Minnesota has stronger restrictions on payday than neighboring states like Wisconsin and the Dakotas.
‘Suckered into a trap’
However, advocates for the legislation called the short-term consumer loan business predatory. Consumer advocates worry that these lending practices harm borrowers, alleviating financial problems only briefly and prolonging deeper dependence on easy but costly cash.
“By definition, [payday borrowers] are the most vulnerable, financially vulnerable, in our society,” said Ron Elwood, a St. Paul-based attorney who has lobbied extensively for tighter regulations on payday loans. “And then you keep stripping assets away and it makes it virtually impossible for anybody to stay even, let alone get ahead.”
Indeed, complaints sent to the state Commerce Department indicate that some borrowers eventually are caught in a loan trap where they are hounded for payments that have snowballed far beyond their financial reach.
“They called me many times at home . . . and my cell phone,” complained a borrower from Hopkins who fell behind on payday loans, including one from Cash Central, a Utah-based company that is licensed to lend in Minnesota. (Commerce officials withheld names and other personal information on the complaints MinnPost obtained through a request under the Minnesota Data Practices Act.)
The Hopkins borrower said that after he took out the Cash Central loan he lost hours at a part-time retail job and couldn’t keep up with payments.
“I have to[o] many loans outstanding,” he said. “It is very sad that this has to happen to me, but I got suckered into a trap.”
One reason payday lending thrives is that it attracts people in Minnesota’s fastest growing population: minorities and the poor – people who often are shut off from mainstream banking for one reason or another.
Increasingly, though, Minnesotans with access to mainstream banks also are tempted to borrow through products very similar to payday loans, high cost included. The next installment of this series will report on that controversial development.
“Once somebody gets a payday loan http://www.signaturetitleloans.com/payday-loans-tn, it’s a vicious cycle,” said RayeAnn Hoffman, company director of Consumer Credit of Minnesota. “You borrow the $350, and you have to pay it again in two weeks and take out another one.”
One bill – introduced by Davnie and Sen. Sandy Pappas, DFL-St. Paul – would have placed all payday lenders under the original 1995 payday lending act and closed the loophole that allows for Industrial Loan and Thrifts.