Letter to Commerce Conference Committee in Support of Pay Day Lending Interest Cap

The Honorable Gary Dahms, Chair Commerce and Consumer Protection Finance and Policy Committee
2111 Minnesota Senate Bldg.
St. Paul, MN 55155

The Honorable Zack Stephenson, Chair
Commerce Finance and Policy
509 State Office Building
St. Paul, MN 55155

RE: Minnesota Catholic Conference requests adoption of Payday Lending Reform language in SF972

Chair Dahms, Chair Stephenson, and Conference Committee Members:

The Minnesota Catholic Conference, the public policy voice for the Catholic Church in Minnesota, urges you to adopt the “Payday Lending Reform” language from the House Omnibus State Government Finance bill (Side-by-Side, House Language, Page R38, Line 49.23 to R41, Line 53.3 and Page 43, Line 55.8 to Page R44, Line 56.2) and include it in the conference committee report. The mere presence of a willing lender and willing consumer does not make a good bargain, especially when that lender’s core business model is based on the borrower’s inability to pay. Simply put, it is time to implement morally acceptable payday lending standards in Minnesota.

Many Minnesota families are struggling, living paycheck to paycheck.  When these already struggling families experience an unexpected expense, they may turn to payday lenders.  Payday loans are marketed as short-term, quick, and easy ways to help a borrower get to their next paycheck. All the borrower needs to do is prove that they have a bank account and a job.  The typical borrower, however, is generally unable to pay back the loan in two weeks and will return to the lender to take out another loan. Upon doing so, the borrower is charged an additional fee.

According to the Joint Religious Legislative Coalition’s 2013 white paper on Payday lending, current law allows borrowers to take out back-to-back loans that, when repeated multiple times, lead to staggering fees making payback impossible. In Minnesota, borrowers average ten loan transactions a year and take about five months to pay off the original loan amount.[i]

Ninety-nine percent of payday loans are made to repeat borrowers who have become stuck in a lending trap from which they are unable to climb out. The problem is obviously not in the loan itself but repeat borrowing that the practice encourages. By design, payday loans trap consumers in a downward spiral of debt.

MCC’s policy positions are based on respect for the inherent human dignity of all people and pursuit of the common good.  This, in conjunction with Church teachings on economic justice, obligates us to question current payday lending practices, especially those that amount to modern day usury.

The Compendium of the Social Doctrine of the Church says that “although the quest for profit is acceptable in economic and financial activity, recourse to usury is to be morally condemned.”  Usury, or the practice of lending money at exploitatively high interest rates, has become increasingly widespread over the past decade as families struggle with economic insecurity.  And though many states have laws regulating usury and capping excessive interest rates, Minnesota remains an outlier.

The Minnesota Catholic Conference is part of a broad coalition of faith-based entities that support payday lending reform.  The 36% interest rate cap outlined in the House position would allow lenders to earn fair and reasonable profits without robbing families of self-sufficiency and undermining the common good.

In his Apostolic Exhortation, Evangelii Gaudium, Pope Francis condemned what he calls economies of exclusion and inequality. In essence, he says that we need to reevaluate economies that encourage competition and survival of the powerful at the expense of the powerless. True and healthy economic growth needs to encourage relationships of solidarity and friendship within our businesses.

Economic protections and just lending practices are more important than ever as Minnesota families strive to recover from the economic crisis caused by the Covid-19 Pandemic.  We look to our elected policymakers to ensure that those facing financial hardship are met with economic policies that promote the dignity of the human person and the pursuit of the common good.  We urge you to take advantage of this opportunity to protect consumers and restrain predatory lending.  Please adopt House Language, Page R38, Line 49.23 to R41, Line 53.3 and Page 43, Line 55.8 to Page R44, Line 56.2 and send Payday Lending Reform to the Governor.

Sincerely,

Ryan E. Hamilton, Esq.

Government Relations Associate

CC: The Honorable Jamie Long, The Honorable Athena Hollins, The Honorable Patty Acomb, The Honorable Tim O’Driscoll, The Honorable David Senjem, The Honorable Paul Utke, The Honorable Andrew Matthews, The Honorable Nick Frentz

[i] https://jrlc.org/wp-content/uploads/2017/09/PaydayLendingPaper0514.pdf

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