MOORHEAD — A proposed new city law in Moorhead that will place limits on payday or short-term loans has passed its first test.

The City Council voted 7-1 Monday night, Sept. 28, to adopt the ordinance that limits the interest rate on such loans between $350 to $1,000 to 33%, restricts fees, limits the number of loans to two per year, requires repayment within 60 days and also calls for detailed itemizations of all charges.

Council member Heidi Durand, who has been studying and leading on the issue for years, said the interest rates average about 250% on such loans in Moorhead. She also said a payment is due within two weeks; the charges go up immediately if the loan can't be paid off.

"Someone's getting ripped off," she said.

Council member Larry Seljevold, who cast the only vote against the ordinance, said he felt the two short-term lending businesses in the city were "legitimate."

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He said there are people of all financial means that may need help with such a short-term loan at times.

The state already regulates the businesses, he said, adding he saw no need for additional oversight.

As part of revisions on the law since a public hearing two weeks ago, it was also decided to limit the number of such lenders in the city to four. Durand said the cap on the number of such businesses would be similar to the limited number of liquor licenses offered.

Another revision involved developing an educational program by early next year that would give residents information on other options for financial help.

In addition to information on a statewide nonprofit, Exodus Lending, that specializes in helping people with payday loans escape from "debt traps," the program could include credit counseling and connections to financial institutions that could aid residents, according to Durand.

Council member Chuck Hendrickson said he would like to see the information become available as soon as possible as the law is likely to take effect Jan. 1.

Mayor Johnathan Judd asked if other cities have similar laws or if this was unique to Moorhead.

Durand said the city ordinance is similar to North Dakota's statewide regulations on such lending and added other cities nationwide have similar laws.

"We're not just creating this or making it up," she said.

Moorhead, however, would be the first Minnesota city to adopt such a law, she said after the meeting.

Durand added that, federally, there's a law that caps interest rates on such loans for active military families, including National Guard and Reserve members, to a 36% interest rate. She said there are laws being considered in the House and Senate to expand that law to all residents.

"We're just bringing it home," she said.

Council member Shelly Carlson said she's familiar with the military law, as they discourage such loans.

She said the reason Moorhead is among the leaders per capita in such loans is because of college students and people crossing over from North Dakota.

"(Payday loans) can lead to a perpetual cycle of debt," she said, adding she was "100% for" the city ordinance.