A gaggle of religious leaders demonstrated briefly outside a Payday America store in south Minneapolis Tuesday, hoping once again to put the spotlight on a multibillion dollar industry that profits by exploiting the country’s poorest residents. Similar demonstrations were being held around the United States.
Study after study has shown that operations such as Payday America — the largest payday loan company in Minnesota — thrive by charging fees and interest rates that often mount to 200 percent and higher on short-term loans. Those who use these “services” typically find themselves locked in a spiral of debt. Yet politicians in Minnesota and many other states have refused to pass legislation that would place even modest limits on the lenders.
If anything, the political climate is less friendly now than in recent years. Still, groups such as ISAIAH — a coalition of more than 100 congregations of a variety of faiths — and the Baptist Convention keep trudging against the political winds, seeking new ways to attack the problem.
Rev. Billy Russell, president of the Minnesota State Baptist Convention and pastor at Greater Friendship Baptist Church, announced that the National Baptist Convention hopes to counter some of the damage being done by creating “our own national credit union.”
“We want to make a difference,” said Russell of his organization. “What’s happening to our members is awful. What they’re doing is sucking the lifeblood out of the poorest in our communities.”
Though the details won’t emerge until the spring, Russell, who is on the board of the National Baptist Convention, said his organization is creating a system that would give the poor opportunities to make loans through a sort of credit union as opposed to the payday outfits.
Holy Trinity Lutheran Church in south Minneapolis also is on the verge of offering a loan and education program. Church members started a fund for the loan program, which is called Exodus Lending, and the program has received a big assist through a grant from Colonial Church in Edina.
But those well-meaning startups are going up against what has become a well-established industry. According to a recent study by the U.S. Consumer Financial Protection Bureau — an organization born of the Dodd-Frank Reform and Consumer Protection Act of 2010 — more than 12 million Americans use the payday loan system annually. Typically, the CFPB report state, the loans are made to borrowers who “renew their loans so frequently that they end up paying more in fees than the amount borrowed.”
Leaders of the demonstration in Minneapolis and elsewhere are urging the CFPB to use whatever powers it has to put tighter restrictions on the payday loan operators. But the Dodd-Frank act clearly states that the CFPB does not have the power to impose usury limits.
To date, few seem to have the will to take on the payday lenders. (In Minnesota, the state statute refers to these operators as “consumer small loan lenders,” which has a nice, benign ring to it. It also should be noted that the Minnesota Department of Commerce has proposed legislation that would put limits on the lenders.)
Minnesota legislators came close to meaningful action last session. The state House passed a bill that would have restricted borrowers from taking out more than four loans a year (though it was not as strong as Commerce Department recommendations).
The bill sought to address a common problem: the repetition that ultimately buries the borrowers and enriches the lenders. The person seeking a $350 loan for a two-week period pays a $35 fee. But often enough, another loan is needed to pay off the original loan, and the fees mount. In 2011, the Minnesota Department of Commerce reported that Minnesotans taking out payday loans paid, on average, an amount equal to a 237 percent annual interest rate.
Despite those ugly stats, the Minnesota Senate only reluctantly tackled the issue last year. Sen. Jeff Hayden, DFL-Minneapolis, finally got a very watered-down version of the House bill passed in the Senate. But the session ended before the House and Senate bills could be reconciled.
Given the Republican majority in the House, any effort to re-start a push to put limits on the payday loan industry might seem problematic; Republicans have been particularly reluctant to place limits on the payday industry, arguing that tighter restrictions could just lead people to turn to loan sharks or internet operations for cash. That could leave the poor an even more vulnerable spot, say people such as Senate minority leader David Hann.
And if money talks in politics, it’s possible that the payday lenders are heard more clearly than their customers. Brad Rixmann, founder and CEO of Payday America, is a major financial contributor to Republican causes, but he has also spread his money around. The DFL legislative caucuses have also received generous contributions from Rixmann.
Rep. Joe Atkins, who worked diligently to pass the bill in the House last session, said he’ll soon re-introduce the bill. Hayden will also start pushing this boulder up the mountain again.
At the federal level, U.S. Rep. Keith Ellison is urging the CFPB to come up with tougher restrictions.
“We can’t give up,” said Rev. Runney Patterson, pastor at New Hope Baptist Church in St. Paul. “People are being greatly affected. They’re being caught in a debt trap. They need help.”