Advocates from local nonprofits plan to call on the Mankato City Council to place interest-rate caps on what they call “predatory” payday lenders.
Payday loans, typically amounting to $500 or less, give borrowers quick cash to be paid back in full at high interest by their next paycheck. Critics say the loans target people in desperate situations, enticing borrowers into “debt spirals” that they’re unable to pay off, while the companies offering them have contended they’re short-term loans for people with otherwise limited credit options.
After gaining little ground on a statewide cap with the Minnesota Legislature, the advocates held an informational meeting Wednesday to outline what a municipal ordinance regulating the industry could look like in Mankato.
Minnesotans for Fair Lending, the Minnesota Council of Churches’ Mankato Refugee Services office, the Greater Mankato Area United Way and Exodus Lending partnered on the event at Shared Spaces. Exodus Lending is a nonprofit helping pay off people’s payday loan debt.
Lead presenter Sophia Hoiseth, community engagement specialist at Refugee Services and Fair Lending’s Mankato organizer, said the issue needs a “champion” on the Mankato City Council.
“It would be really exciting for Mankato to be sort of like a leader in the state on this,” she said. “And it’s within reach; it’s definitely possible.”
One proposed ordinance called for no more than a 33% interest rate on payday loans. The average annual interest rate on payday loans in Blue Earth County in 2021 was 294%, according to data shared at the event.
People also would be limited to two loans of up to $1,000 per calendar year under the ordinance, with a minimum payback period of 60 days. Borrowers in Blue Earth County took out 14, $355 loans on average in 2021, according to numbers provided at the meeting.
Blue Earth County reportedly has the third highest rate of payday loans issued per capita in Minnesota. Payday America in Mankato is Blue Earth County’s only current payday lending company.
Mankato would have precedent to work off of if elected officials did pursue an ordinance. The city could model its ordinance on what Moorhead passed in 2021, Hoiseth said, and licensing requirements on lenders could look similar to those imposed on tobacco and alcohol sellers.
Heidi Durand worked on and supported the ordinance as a Moorhead City Council member. Now a city policy specialist with Minnesotans for Fair Lending, she offered advice to Mankato advocates at Wednesday’s meeting.
“I think it just needs to be clarified really, really early on that nobody is forcing anybody to leave or shut their doors,” she said. “We’re just asking to follow some simple requirements.”
Before Moorhead’s ordinance capping interest rates at 33% kicked in, a payday lender in Moorhead told MPR News it would make it nearly impossible to run the business.
While Minnesota isn’t one of them, 18 other states have either banned or capped payday lending. Lack of progress among state lawmakers prompted Minnesotans for Fair Lending to pursue a city-to-city model.
At the Legislature, the people working on the issue came up against a “mythology that payday lending or predatory lending is an urban poor problem,” said Meghan Olsen Biebighauser, Fair Lending’s organizer for economic justice.
“We had a hard time sometimes getting a foothold in with legislators who weren’t in Minneapolis or St. Paul proper,” she said. “And we just know from the data we have from the Department of Commerce that it’s impacting Greater Minnesota communities as much and often more than it is the urban centers.”
After an event focused on getting the information out there, Hoiseth said she’s confident it’ll spur enough interest in the issue to produce results in Mankato.
“This is something we can do and are going to do,” she said. “It’s just a matter of making sure the right people hear the right information.
