A Big Problem in a Small Community: Payday lending debt in Mankato
MCC Refugee Services in Mankato recently agreed to partner with an initiative of the Minneapolis Synod ELCA working to combat predatory payday lending in Minnesota communities. Payday loans are small loans, usually less than $500, that charge a high interest rate and must be repaid in full by the next paycheck. Families without financial margins can become easily entrapped in a devastating cycle of payday loans.
Blue Earth County has the 3rd highest rate of payday loans per capita in Minnesota and the statistics are staggering. For example, in 2018 there were:
- 7,045 payday loans in Mankato taken out by
- 725 individual borrowers.
- The average loan amount was about $400, but the total amount in loans was over
- 3 million dollars!
To reiterate, 725 people took out over $3,000,000 in loans in one year, with average loan amounts of $400. Lenders charge a fee for each loan, and many borrowers end up paying more in fees than the value of their loans. Payday lenders can charge very high interest rates, and these borrowers were charged an average interest rate of 286%. These loans are usually taken to cover necessities like rent or car payments by individuals who don’t want to ask friends or family for money, or who might not have a support network. The only requirements are income and a checking account, which makes it easy to secure a loan, even if the borrower has little capacity to repay it.
Based on models that have been successful in other states, the ELCA is focusing on an advocacy approach that would cap the interest rate at 36%, which is often enough to cause payday loan operations to close and leave the community. There is bipartisan support for capping the APR, but our staff is finding that many decision makers are unaware of the scope of payday lending in their communities. Working with the ELCA and Minnesotans for Fair Lending, we are working to educate lawmakers and local officials about the scope of payday lending in their communities, and the impacts it has on the community.
Fortunately, our staff is not aware of significant payday loan use in refugees in Mankato at this time, but we are working to ensure that all families in the Mankato area know the risks, and can find better options to meet expenses. Part of this outreach also making borrowers aware of exit resources like Exodus Lending that helps families escape the cycle of payday loans with an interest free repayment plan over a 12 month period.
For more information about MCC’s work in Mankato, contact Nancy at Nancy.email@example.com