If the mob had as many loyal and outspoken customers as Payday America, maybe lawmakers would look more favorably upon old-school loan sharks.
At least that was one possible takeaway from the Capitol on Wednesday, where the Senate Commerce Committee, in an 8 to 5 vote, dumped a high-profile push to rein in the burgeoning and oft-pilloried payday loan industry. Instead, the committee sent a far less restrictive proposal to the Senate floor.
The vote was a setback for advocates of the Predatory Payday Lending Bill, which was backed by Minnesotans for Fair Lending — a coalition of more than 30 nonprofit groups, religious organizations and foundations — and enjoyed support from leadership in both chambers of the Legislature.
The committee’s action came after a hearing that featured testimony from payday loan critics, industry representatives and five payday loan customers.
In urging committee members to oppose new regulation, three customers offered undiluted praise to the local industry heavyweight, Payday America. The Burnsville-based company, which has 16 stores and is part of the Pawn America chain, recruited testifiers to the hearing via a “consumer action alert” on the front page of its website.
One such satisfied customer, Rebecca Eckman of Richfield, said she first went to a traditional brick-and-mortar payday lender years ago (in an effort to build up her Beanie Baby collection) but later made the mistake of turning to an Internet-based lender. She said that lender hectored her so often for repayment that she sent out cease-and-desist letters, albeit to no avail.
“They called me every day at work for three years. … it was relentless,” Eckman said. “When I found Payday America, I said, ‘Please tell me you’re not like those other people.’” She characterized the company as “above board” and “honest.”
“I don’t want to go back to having to borrow from my parents,” she said. “I need to have a way to cover myself because the banks won’t loan you money.”
Teri Frye, a financially challenged widow from Blaine who works as a cashier for Target, echoed that sentiment. “I don’t have time in my day to come to St. Paul and ask you not to take away my financial rights,” Frye told committee members. “If Payday America is gone, I have no idea what I’ll do.”
Over the years, Frye said her financial woes have led her to bankruptcy and forced her to sell blood plasma. She called Payday America “the only good option I have to make ends meet.” While she routinely relies on the advances to cover gas and groceries, she said, she settles those debts “every payday.”
“I just want to thank God for Payday America,” agreed Sherry Rasmussen of Wayzata. Rasmussen said she learned about the company at her church after being swindled out of $200 by an Internet-based payday lender. “Payday America has always been very supportive. I don’t know what I’d do without them,” Rasmussen said.
Not all customers satisfied
Two other Payday America customers, who were recruited by Minnesotans for Fair Lending, described their experiences in a much less flattering light.
Renee Bergeron, a single mother of four from Duluth, tearfully recounted how she took out her first loan because she was hoping for a quick financial fix and didn’t want to turn to family. Unable to repay that loan, Bergeron said, she filled out the paper work for a second, larger one. Despite the fact she was eligible for food stamps and her kids were on medical assistance, she said, she qualified without trouble.
“After that, it just started spiraling,” she said. “It’s just a bait. Once you spend the money, you’re like, ‘I’ll take that extra amount.’”
Sherry Shannon of Roseville said she took out her first Payday America loan in 2012 to pay moving-related expenses. Shannon, who is on disability, said she was unable to repay the loan, so she continued to borrow. “After a few loans, I was just stuck,” Shannon said. “Once I was in the trap, I didn’t know what to do.” She said she has paid nearly $500 in fees but has not satisfied her debt.
Such experiences highlight what critics refer to as “the payday loan debt trap.” According to 2012 data from the Department of Commerce, the average payday loan in Minnesota is around $380 and carries an annual interest rate of 273 percent. More significantly, the typical borrower takes out 10 such loans per year, with 20 percent taking out 15 or more.
In his testimony, Commissioner of Commerce Mike Rothman said that reforming the industry is one of Gov. Mark Dayton’s top priorities. In the wake of the Great Recession, Rothman noted, the number of payday loans has doubled and created “a terrible situation for families and people who are just scraping by.”
“We need better financial products,” Rothman said.
Industry: Alternatives are worse
In response to such assertions, Paul Cassidy, a lobbyist for Payday America, said the proposed legislation will lead borrowers to pursue “worse options,” such as loan sharks, payday businesses located in states with little regulation, and unscrupulous Internet-based lenders. He urged lawmakers to respect “the intelligent choices” of Payday America’s customers, whom he characterized as educated, “middle class Minnesotans.”
Cassidy objected to two provisions of the bill that are regarded as critical by advocates. The first would impose a limit of five payday loans per year. Currently, there is no such cap. The second would beef up underwriting by requiring that lenders examine a borrower’s living expenses, not just earnings. Lenders would also have to consider whether a borrower is on a fixed income.
Cassidy said the latter provision violates the federal Equal Credit Opportunity Act, a point that gained traction with several committee members.
In an amendment that essentially constituted an entirely new bill, Sen. Paul Gazelka, R-Nisswa, eliminated the underwriting requirements in favor of a simpler, industry-backed solution: limiting customers to 12 payday loans per year. The proposal drew a skeptical response from Sen. Ron Latz, DFL-St. Louis Park, who said the amendment “does more harm than good and doesn’t advance the ball.”
“I wouldn’t want to gut our bill and start over with this small bill,” agreed Sen. Jeff Hayden, DFL-Minneapolis. Hayden, the bill’s sponsor, instead urged committee members for “some clean amendments.”
That didn’t happen.
In the end, the committee voted on the Gazelka amendment, albeit with two significant changes. The loan cap was lowered to eight per year and a 45-day “cooling off” period between loans was established. With those in place, the Gazelka amendment passed in an eight to five voice vote. Two Democrats — Sen. James Metzen, DFL-South St. Paul, the committee chair, and Sen. Roger Reinert, DFL-Duluth — joined a unified Republican bloc on the committee.
“Oddly enough, it made everyone unhappy, so maybe it was the right thing to do,” said Reinert, who proposed the oral amendment that inserted the 45-day cooling off period provision.
Brian Rusche, the executive director of the Joint Religious Legislative Coalition, testified in favor of the Hayden bill but said afterwards that the committee’s action constituted progress.
“Though the bill was weakened, we believe we can have some good, productive conversations on the floors of the House and the Senate,” Rusche said. “I’m confident that, before we’re done, we’ll have a bill that will end the debt trap but still allow some access to small amounts of credit.”