By: Javi Calderon
Minnesota Takes Action Against Online Payday Lenders
Payday loans have been around for years. But it wasn’t until recently, since the recession of the late 2000’s, that their popularity has skyrocketed. The combination of lost jobs and/or wages and tightened lending restrictions by banks have left many middle- and low-income wage earners searching for other options when in need of quick cash. The easy answer is, of course, a payday loan.
In order to provide short-term loans to high-risk borrowers who typically have bad credit, lenders attach high interest rates to these loans. In order to simply process a cash advance loan it costs the lender $13.50.
Many consumers, activists and politicians feel these interest rates are too high and can leave borrowers with worse money problems than they started with. For this reason, many states have enacted laws to reign in the deferred deposit industry. At least 17 states have capped interest rates at 36% APR, a few have even banned payday loans from their states altogether.
The policy differences from state-to-state have opened yet another issue: Internet payday lenders. Lenders located in a less-regulated state are still offering loans to customers in states that are more strictly regulated right over the Internet, thus skirting the regulations in place in that state.
This is exactly what is taking place in Minnesota, where the Minnesota State Commerce Department has decided to do something about it.
After receiving multiple complaints from consumers who were charged interest rates close to 200%, the state Commerce Commissioner is taking action against four unlicensed payday lenders who have been granting loans to citizens within the state illegally. Minnesota has required lenders to be licensed for years, but online lenders have only been required to obtain a license for two years.
According to the Commerce Department, the amount of payday loans in the state of Minnesota have almost quadrupled since the economy went into recession in 2008.
There are 25 companies who are licensed to offer payday loans in the state, last year they handed out over 130,000 loans totally over $40 million. Nearly half of all consumers of payday loans in Minnesota take out at least five payday loans.