This article is one in a series of occasional articles funded by a grant from the Northwest Area Foundation.
Efforts to crack down on payday loans in Minnesota could again be headed to “Wait’ll-next-year’’ status.
Yes, the Minnesota House has passed a bill that would put tougher restrictions on operations that charge the state’s poorest interest rates of 250 percent-plus.
And yes, the governor on Monday tried to shed more light on the business practices that operate in the shadows of decency.
“I urge the Senate to put the House bill to a vote and see whether legislators of both parties are willing to stand up to protect the interests of the people of Minnesota, rather than the economic interests of payday lenders,’’ the governor said from his bully pulpit.
The House bill more strictly limits payday lenders’ repeat business, with tougher checks on borrowers’ ability to repay.
But even with a weaker Senate bill, Deputy Majority Leader Jeff Hayden is having a hard time rounding up votes.
“It’s bogged down,’’ said the Minneapolis DFLer. “The industry is fighting anything we try to do.’’
This is one of those baffling issues. Why is it so difficult to put tougher restrictions on an industry that seems to have a strong odor? Why does Minnesota continue to protect business practices numerous states outlawed and the Department of Defense condemned? Why has this issue become partisan, with virtually no Republicans supporting clamping down on the industry?
Or is it really that partisan, when you look at campaign contributions?
Soaring business, soaring traps
A MinnPost series last year underscored the industry’s growth. Between 2007 and 2011, payday loans in Minnesota skyrocketed from 170,000 to 350,000 annually, totaling almost $100 million. The state’s biggest payday loan company, Payday America, pocketed $6 million in 2011 payday profits.
In House committee testimony this session, Anna Brelje told her story to explain how the process works — and exploits.
She was 24 years old, had a medical crisis (no insurance) and ended up in debt. Even working fulltime, she couldn’t keep up with her bills. She borrowed $300 through a payday loan operation, couldn’t pay it back in two weeks, so next payday borrowed again to pay back the first loan.
“I ended up trapped,’’ she said; in a two-year period, she paid more than $2,500 in fees.
Out of the trap now thanks to a decent job, Brelje became a leader in the fight against the practices. She’s also involved her Minneapolis church, Holy Trinity Lutheran.
Several religious organizations have also pushed legislators to act.
In some ways, this seems like a classic case of those with the greatest needs having the least Capitol clout.
Rep. Joe Atkins, DFL-Inver Grove Heights and commerce committee chairman, shakes his head at the situation.
“The people that get caught up in these traps are not stupid people,’’ Atkins said. “They’re people who are just desperate and they’re struggling to get by. Everyone else gets protected.’’
But Sen. David Hann, the Senate minority leader, sees things differently. Tighter restrictions on the payday loan operations might end up hurting the very people they intend to help.
“I don’t know what side the angels are on in this situation,’’ Hann said. “As I understand it, the people who are using these mechanisms to borrow money can’t avail themselves of traditional ways. These are mechanisms are a way to get a loan. There are people who don’t have means to get credit elsewhere. There has to be an accommodation.’’
Rixmann: GOP power, DFL donor
Let’s take time out to deal with a rumor that floats around the Minnesota payday loan issue:
Brad Rixmann is founder and CEO of Pawn America, which owns Payday America. Rixmann also is a major player in Republican Party politics. He is a big donor. He was an honorary chairman of Tom Emmer’s gubernatorial campaign.
That leads to the rumor that Rixmann has heavy influence on the Republican House and Senate caucuses.
Hann says Rixmann’s name never has come up during caucus discussions of payday-loan crackdown efforts.
Still, Hann was asked, given that GOP legislators frequently say unions shape DFL policies, isn’t it reasonable to suggest outside influences shape GOP policies?
“Frankly, when you talk about an individual donor, it doesn’t compare to the magnitude of a union,’’ Hann replied. “When you talk about a union, you’re talking about both money and people on the ground. There is no individual contributor who can compare to that.’’
Rep. Tim Sanders, R-Blaine, is a member of the House commerce committee and a bill foe.
The Rixmann influence? “His name hasn’t come up,’’ Sanders said.
But Republicans don’t control the Legislature — Democrats do. They could pass any bill on their own. Why don’t they?
Well, as long as we’re talking Rixmann donations, know this:
In 2013, Rixmann gave $10,000 to the DFL Senate Caucus, $5,000 to the DFL House Caucus, $500 to the 52nd Senate District DFL, and $4,000 to Gov. Dayton, according to the Campaign Finance and Public Disclosure Board.
While the funds obviously didn’t buy Dayton’s or the House’s support, Senators might have some explaining to do about their fifth-largest 2013 individual contributor. Rixmann also gave the Senate DFL an additional $24,750 between 2006 and 2012, according to the CFPDB.
Understand, Rixmann was more generous with Republican causes. Still, his name is known — if not mentioned in caucus sessions — among DFLers as well as Republicans.
Cap doesn’t mean ‘need is just going away’
Rixmann was not available for comment. But Chuck Armstrong, chief legislative officer for Rixmann Companies, did explain why the business is blocking legislative efforts to cap how many annual loans a customer could take out.
The House bill’s main portion would prevent a customer from getting more than four loans a year. The weaker Senate version would cap that at eight. The House also requires tougher credit-worthiness checks.
But the big issue is the caps — payday lenders count on repeat borrowers. And some of those borrowers testified that they repeatedly count on payday lenders.
“To cap it doesn’t mean the need is just going to go away,’’ Armstrong contends.
Currently, most of Payday America’s 20,000 customers use the service more than eight times in a year, he said. Payday America, at least, allows customers to take out only one loan at a time, he adds.
Armstrong admits that, on the surface, it’s easy to paint a bleak picture of the operations such as Payday America. But, he said, despite statistics showing people paying more than 200 percent interest on loans, the majority of Payday America’s customers pay back their loans in two weeks.
“If you borrow $350 and you pay it back in two weeks, it’ll cost you $35,’’ he said. “Our customers are very deliberate in their decisions. … Our customers love us.’’
(The state’s Department of Commerce reported that in 2011, Minnesotans using payday loans paid fees and other costs for loans that amounted to an interest rate of 237 percent. These institutions get around the state’s tough usury laws because they are licensed as Industrial Loan and Thrift operations, not payday lenders. This is what is called a big loophole.)
During the session, Armstrong said, Payday America customers sent 10,000 e-mails and letters to legislators urging them to oppose the proposed restrictions. On the company’s website, there is an invitation for customers to urge legislators to block proposed changes.
The opposition’s trump card is that if the Legislature did pass the proposed restrictions, the licensed lending business might be forced to close. That would mean the only avenues for loans would be via the Internet or on from street corner loan sharks.
“The real danger is the Internet,’’ Armstrong said. “There are Internet predators. We’re a brick-and-mortar, licensed business.’’
Refusing to stop the ‘terrible treadmill’
With time running out, it appears that those lobbying to stop legislative action hold the stronger hand.
“The whole point of what we’re trying to do is get people off that terrible treadmill where they keep borrowing to pay back an earlier loan,’’ Hayden said.
But just to get the Senate version of the bill through the Senate commerce committee, headed by James Metzen, an old DFLer long known for being friendly to anything associated with banking, Hayden had to water down his bill.
“The Senate is just more conservative,” Hayden said.
Will the measure get off the floor? On Monday, several people pushing for legislative action met briefly outside the Senate chamber with majority leader Tom Bakk.
What was said?
“He told us they still don’t have the votes,” said Meghan Olsen Biebighauser, a Holy Trinity organizer who helps lead religious opposition to payday lending.
Someone else in the group said, “Don’t you think he could get the votes if he really wanted them?”
This seems another issue on which the current DFL Senate majority is more conservative than not just the House DFLers, but the DFL itself.
Do not ignore the role played by regular banks in these loans– they’re having to change their business in these loans because of federal rule changes to reign them in. They also are political donors, not just the little guys like the one so quoted here. (Yes, “little,” compared to US Bank and Wells Fargo, etc.)
Just a thought
Universal health care and a living wage for everyone would make this whole “industry” largely disappear, save the few “customers” whose money management skills are nonexistent, and those people could be taught to budget for a lot less than the dollar value of the interest paid to these barely-legal loan sharks.
Because it is a free country?
Actually the answer is probably more supply and demand. If less people were in such desperate means there wouldn’t be so many loans necessary. In the meantime, people should be free conduct personal business amongst themselves.
Fine for the Senate to be more conservative — they’re not up for reelection. The House doesn’t have that luxury. It sounds like the minimum wage, where they were leaving the House out to dry for a long time. They got it done, but it shouldn’t have involved such turmoil. Likewise on payday lending.
It’s simply
predatory lending no matter what it’s called. An interest rate of 237% attests to that. Someone once said not all that long ago that Minnesota, unlike many other states, doesn’t allow predatory lending. Obviously that was not a true statement. It’s a country wide dodge. If people have only one choice, it’s hardly freedom. It’s simply saying ‘you have a choice. This or nothing.’ That’s a worldwide freedom and we have no rights or claim to that freedom.