MOORHEAD — The two payday loan or short-term consumer lenders in Moorhead may be facing added restrictions in the future.
Moorhead City Council member Heidi Durand, who worked on the issue for years, is leading the effort as the council considers adopting a new city law capping interest rates at 33% and limiting the number of loans to two per year.
In a public hearing on Monday, Sept. 14, council members expressed support and offered comments on available options for those in a financial crisis or those in need of such loans.
Council member Chuck Hendrickson said he thinks alternatives need to be provided if such loans are no longer available. He urged talks with financial institutions about ways those with no credit or poor credit could secure funds.
Durand said such a city law would be the beginning of helping those in financial straits, and nonprofits, churches or Moorhead Public Service could also offer options to help residents pay bills.
Exodus Lending, a St. Paul-based nonprofit that helps Minnesotans pay off payday loans and only charges them the money they first requested, has a 99% repayment loan, she said.
Council members Sara Watson Curry and Shelly Dahlquist thought education about options would be helpful, too.
In written and public comments provided to the City Council during the public hearing, Chris Laid and his brother, Nick, of Greenbacks Inc. were the only residents to speak in opposition.
Chris Laid wrote that the law change "would effectively make it impossible to sustain a successful short-term consumer loans business in Moorhead, eliminate the primary source of income for myself and my family and most likely increase the cost and hardship for borrowers in the community.,"
His brother was more direct, saying if the law passed it would likely put them out of business and drive people to Fargo where there are higher interest rates.
Chris Laid, who owns the business with his brother and his father, Vel, said, "many people who use short-term consumer loans already have limited credit access either due to poor credit, no credits, lack of collateral or lack of community support structures such as friends or family.
"It can be argued that limiting the number of short-term consumer loans per year unfairly restricts the credit access of a portion of the population that already has limited credit access," Laid wrote.
He compared the limits on such loans to restricting a person with a credit card to two charges per month.
The Moorhead Business Association and Downtown Moorhead Inc. refused to comment on the proposed law, while it was noted the city's Human Rights Commission unanimously supported the move.
Durand said the proposed law would instate the following limitations:
- No more than two loans of $1,000 or less per person per calendar year.
- Limits on administrative fees.
- Minimum repayment requirement of 60 days.
- Itemizing of all fees and charges to be paid by the borrower.
- An annual report for renewal of license, with total number of loans, average annual interest charged and state of origin for borrowers.
- A $500 fee of an initial application for a business and $250 for renewal.
"It's just not a healthy option," Durand said about the payday loans that are often renewed multiple times with fees and interest rates adding up to a "debt trap." She said interest rates can sometimes be in triple digits.
Communities are unaware of the "financial suffering" of residents because it can be embarrassing to seek out such a loan, she added.
Durand said she doesn't buy the argument that the loans are "risky" and that's why higher rates are charged. She said the "write-off" rate on the loans was well below 1% in the past two years.
"It's just another myth," she said.
It was noted that, per capita, Clay County is No. 2 in Minnesota for the number of such loans taken out.
Durand added that financial troubles are widespread, noting 1,300 customers of Moorhead Public Service are two or more months behind on their bills.