Moorhead councilwoman leads charge to stop 'vicious cycle' of payday loans
MOORHEAD — Moorhead City Councilwoman Heidi Durand is saying it's time to stop payday loans that typically charge triple-digit interest rates.
She asked the city's Human Rights Commission Wednesday, Feb. 19, to support state legislation that would severely reduce interest rates or to back a possible city plan to limit rates.
Durand said the "working poor or the most financially strapped or vulnerable" are taking out millions of dollars of such loans in Clay County, adding up to hundreds of thousands of dollars in interest payments and fees removed from the local economy.
Many borrowers, she said, can't get a loan from another financial institution. Per capita, the county ranks second among the 24 in Minnesota that have at least one payday loan lender.
Current state law allows a two-week loan of $380, for example, to cost as much as $40, a 275% interest rate. However, Durand said some end up much higher, noting that the three largest payday loan lenders in Minnesota, which account for 75% of such loans, operate under an industrial and thrift loophole to avoid that cap. The lenders, she said, "have little or, I should say, absolutely no regard for the borrower's ability to repay the loan."
She said many borrowers — those who took out about 76% of payday loans nationwide — can't repay the first-time loan, so they have to borrow more. Thus, she said, many become "trapped in a vicious cycle."
Durand said there are two payday lenders in Moorhead — Greenbacks, 819 30th Ave. S., and Peoples Small Loan Co., 1208 Center Ave.
Greenbacks President Vel Laid said people who have never used the business don't understand it.
"We're in the ambulance business," he said. "People might have their light bill due and they need money right now. They need it immediately. They don't have time to go to a bank and then wait two to three days for an answer. It's an emergency. "
Laid said they're not a bank, but instead provide loans to people who otherwise can't get one.
"It's a matter of supply and demand," he said, noting they get customers from "all over" and referring to his company as a "short-term loan" provider, not a payday loan company.
Laid said if city or state regulations are approved, the business will "just go underground again." Asked about the higher cost of loans, "we take on a lot of high risk," he said.
A person who answered the phone for Peoples Small Loan Co. said they operate under restrictions, but said he was "not interested" in an interview.
'Letting people down'
In 2018, Clay County reports to the state Department of Commerce showed there were 11,305 payday loans taken out for $3 million by 856 borrowers, with 1,600 of the loans stretched into five or more extensions and 219 extended 20 or more times.
Durand said she doesn't know how many borrowers may be crossing over from North Dakota, where lenders face stricter restrictions, and lenders don't report demographics of borrowers.
The county's average payday loan was $273, and the average annual interest rate was 205%.
A study by the Pew Charitable Trusts found about 70% of borrowers use payday loans for "ordinary expenses," such as groceries or utility bills, rather than emergencies, she said.
A Minnesota legislative bill that would have capped interest rates at 36% and closed the industrial and thrift loophole failed in the last session. Durand said residents who oppose the practice need to write letters or contact state legislators.
Moorhead Human Rights Commissioner Heather Keeler told Durand she didn't support the earlier legislation because she thought 36% was a high cap, but after Durand's presentation, she had a new perspective, adding the city perhaps is "letting people down" by allowing such high interest and fees.
Human Rights Commission Chairwoman MaKell Pauling-Normandin said she was willing to offer support for state legislation or even a city law and would encourage others to offer their support.
Durand said Moorhead City Attorney John Shockley and City Manager Chris Volkers were looking into what the city could possibly do, and she hoped to bring the issue before the City Council.
A city plan could possibly cap interest rates, limit reborrowing, mandate longer repayment times or regulate fees, she said. The city could also possibly work with Moorhead Public Services, she said, which can cut off utilities in the warmer months, to offer payment plans or find other ways to help poorer residents pay bills.
Shockley said he was still looking into the legal issues surrounding any possibilities of creating a city law.
Both North Dakota and South Dakota have laws to limit payday loan interest rates. North Dakota limits loans to $500, with 60 days to repay and fees and finance charges capped at 20% with only one reborrowing loan.
South Dakota voters approved an initiated ballot measure in 2016 changing payday and car title lending laws with an interest rate cap of 36% and only four reborrowing loans. Once the law went into effect, most of the lenders closed or abruptly left the state, including a major company called the Dollar Loan Center in Sioux Falls.
Since that time, the national Center for Responsible Lending said South Dakotans saved $81 million a year in fees that would have otherwise been paid on the loans. The report also stated former companies in South Dakota are still aggressively seeking debt collection by filing lawsuits in small claims court on loans dating back years after they flipped terms on borrowers into massive increases in interest rates.
As Durand works on the issue, she said there is an option for borrowers who want immediate help. The Exodus Lending nonprofit in St. Paul works statewide, pays off loan debt directly to lenders and works out a repayment plan for up to 12 months with no fees or interest.
Executive Director Sara Nelson Pallmeyer told The Forum Exodus has a 90% rate of successful paybacks from the 413 borrowers it has helped since starting in 2015. Last year, the nonprofit became a member of the Credit Builders Alliance so it can help people establish or rebuild credit scores because they can now report payments to major credit bureaus.
She is also leading the effort to try to get state legislation approved, which she said passed the House last year, but didn't get a hearing in the Senate. She thinks 2021 is probably when they will start a push again as she doesn't know if it'll be considered again in 2020.
To seek help
Contact Exodus Lending in St. Paul at 612-615-0067 or online at www.exoduslending.org to find out more about the nonprofit. Moorhead City Councilwoman Heidi Durand said people can also contact her for more information at 701-541-2684.