Fighting Predatory Lending in Minneapolis
In the first two articles of this series, we talked about payday loans: what they are, why they’re bad, and what some other communities have chosen to do about it. Today, I’m going to be diving a little bit deeper into what I think might work to combat predatory lending here in Minneapolis, and in Minnesota more broadly.
Great. So I remember that last time, we talked about four major options for limiting payday lenders around the country: banning them, financial regulations, business regulations, and building alternatives. Which ones do you think we should try here?
Actually, all of them. I think the most effective strategy is one with a couple of different potential solutions that strengthen and reinforce each other. That’s why Blexit is looking at three separate tactics for disrupting payday lenders: passing a fair lending ordinance at City Hall, pushing legislators to pass state-wide fair lending laws, and building a community lending service of our own.
Sounds like a lot of work. Why all of them, instead of just picking one to start with?
Well, because each option has its own advantages and limitations.
- We have a strong, progressive majority at City Hall, making it easier to get support for restrictions against predatory lending, but they can only pass local laws, and many payday lenders are in the suburbs or rural areas.
- The state legislature has a lot of power over payday lenders, but they’re going to be tougher as a whole to convince of the necessity of fair lending laws.
- Building a better alternative to payday loans is going to make the most difference—if people can get their financial needs taken care of without being forced into a cycle of debt, it’ll make payday lenders unnecessary. That said, opening a community lender won’t put an end to payday lenders overnight - that’s why we have to pass local and state level policy.
Passing a Fair Lending Ordinance in Minneapolis
Got it. So what do you want to do at City Hall?
Well, first things first, we should make it illegal for new lenders to open up, and for current lenders to expand. We already have too many payday lenders, and we shouldn’t let new ones move in, especially while we’re considering stricter policy.
Makes sense. What’s the end goal, though?
Ideally, the city would ban payday lenders entirely, and pass a resolution formally asking the state legislature to pass an interest rate cap on consumer loans.
What if they’re not willing to go that far?
Putting a hard cap on the number of lenders in the city limits would be worthwhile. So would requiring the lenders to operate outside of communities with above average poverty rates. There are lots of options here—none of them as good as an outright ban, but still worth considering. We can look to other cities that have passed laws against payday lending for inspiration - I gave some examples in my second blog.
Pushing Legislators to Pass State-Wide Fair Lending Laws
Sure. Okay, how about the state legislature?
As I mentioned before, an interest rate cap is probably the way to go. Under most conditions, lenders can’t charge more than 36% interest for a consumer loan. Many states, including South Dakota, have successfully passed laws preventing payday lenders from charging any more than that. If we passed an interest rate cap, predatory payday lending would become nearly impossible.
Sounds like a good plan.
Thanks. If that’s not workable, we could look to some other solutions. The CFPB’s new payday lending rule probably won’t ever go into effect at a national level, but we could pass it into law at the state level. It wouldn’t end predatory lending, but it might help to make the consequences of taking out a payday loan less horrible.
Wait, isn’t Republican control of the state government going to make all of this impossible anyways?
Not necessarily. There are tons of Republicans who hate payday lending—in fact, as I mentioned last week, the state with the most municipal limitations on lenders is Texas, of all places! If they can pass laws against payday lending there, we should be able to make it happen here—regardless of how much money payday lenders are donating to legislators’ campaign funds.
Building a Community Lender of Our Own
Okay I get all that, but what’s this about starting a community lender?
It shouldn’t be painful to borrow money. Everyone has a little trouble making ends meet from time to time, and we should have a support network to make sure people get their needs taken care of. Unfortunately, living in a capitalist society, too often the only options for folks in need do more harm than good. We can do better.
What would better look like to you?
Well, there are some good things about payday lenders: they allow almost anyone to borrow money quickly and easily, no questions asked. But when you get that money, you have to pay it back, plus an incredibly high fee, within two weeks, all in one sum. That’s no good. I’ve been working with our friends at Village Trust Financial (also known as the Association for Black Economic Power) to come up with ideas, and they’ve decided to start a consumer lender that’s accessible to the whole community, offers low interest rates, and gives the customer flexible repayment options.
Wow. If that existed, why would anyone go to a payday lender?
They wouldn’t! That’s the whole point.
Wait, so what would the loan APR be? How would the business be classified? Who would be eligible for loans? Where would it be located? How could y-
We'll be talking more about that in the next few weeks. For now, don’t hesitate to reach out to us to get involved in our work. Again, my email is email@example.com. Feel free to reach out to me with ideas, concerns, or feedback around these ideas—nothing is set in stone, and we’d love to hear from you. See you soon!