Minnesotans are turning to high-interest loans and other services outside the mainstream banking system, controversial enterprises that operate through a loophole to dodge state restrictions.
This article was reported and written by Jeff Hargarten, Kevin Burbach, Calvin Swanson, Cali Owings and Shayna Chapel. The article was supervised by MinnPost journalist Sharon Schmickle, produced in partnership with students at the University of Minnesota School of Journalism and Mass Communication, and is the first in a series of occasional articles funded by a grant from the Northwest Area Foundation.
Call it predatory lending. Or call it financial service for the neediest. Either way, more Minnesotans are turning to high-interest payday loans and other services outside the mainstream banking system, controversial enterprises that operate through a loophole to dodge state restrictions.
On a typical morning throughout Minnesota, customers stream into any one of some 100 storefronts where they can borrow hundreds of dollars in minutes with no credit check – at Super Cash on the north side of Bloomington, for example, at Ace Minnesota Corp. on Nicollet Avenue in Richfield and across the metro on Roseville’s Rice Street at PayDay America.
The demand for these loans doubled during the Great Recession, from 170,000 loans in 2007 to 350,000 in 2011, the highest reported to the Minnesota Department of Commerce in state history.
While 15 other states forbid such lending practice, Minnesota lawmakers have been largely unsuccessful in several attempts to crack down here. Some lenders have used the loophole to charge higher rates and grant bigger loans than state lawmakers had previously allowed. And they have successfully lobbied against tighter rules.
Their Minnesota borrowers paid fees, interest and other charges that add up to the equivalent of average annual interest rates of 237 percent in 2011, compared with typical credit card rates of less than 20 percent, according to data compiled from records at the Minnesota Department of Commerce. The rates on loans ranged as high as 1,368 percent.
In all, Minnesotans paid these high rates on $130 million in such short-term loans in 2011, some of it to companies headquartered outside Minnesota. That is money the borrowers did not have available to spend at local grocery stores, gas stations and discount shops.
“This exploitation of low-income consumers not only harms the consumer, it also places a needless drag on the economy,” wrote Patrick Hayes, in an article for the William Mitchell Law Review.
Now, the fast-cash loan business has expanded in Minnesota and nationwide with large conventional banks – including Wells Fargo, U.S. Bank and https://signaturetitleloans.com/payday-loans-vt/ Guaranty Bank in Minnesota – offering high-cost deposit advances that function much like payday loans.
Demand for high-interest payday loans soars in Minnesota
This is the first in an occasional series of reports exploring questionable lending practices in Minnesota and what is being done about them.
Filling a need? Or preying on the needy?
Short-term lenders and their supporters insist that their loans are helpful services in cases of emergencies and other needs for quick cash. They fill a gap for people who don’t qualify for full banking service.
“We are supplying a service that the consumer can’t get somewhere else,” said Stuart Tapper, vice president of UnBank Co., which operates UnLoan Corp., the third largest payday lender in Minnesota.
The lenders also dispute the emphasis critics have placed on annual percentage rates because borrowers can pay less in interest if they pay off the loans on time, typically two to four weeks.
However, critics say the payday lending business model depends on habitual customers taking multiple loans a year. Of some 11,500 Minnesota borrowers who obtained short-term loans in 2011, nearly one-fourth took out 15 or more loans, according to the state Commerce Department.