Nancy Edmonds Hanson
Payday lenders, who offer small short-term loans at high rates of interest, may have to comply with a new level of regulation to operate in the city of Moorhead.
The city council approved the first reading Monday of an ordinance inspired by council member Heidi Durand to set a ceiling of four of the small commercial lending businesses and require licensure by the city. The maximum loan would be set at $1,000, with a minimum term for repayment of 60 days. The maximum interest that could be charged on loans of from $350 to $1,000 would be 33%.
According to city planner Kristie Leshovsky, who presented the ordinance, the measure also includes reporting requirements and sets a maximum of two loans per year to one individual.
Placing limits on payday lenders, who typically serve borrowers who need funds to tide them over to their next paycheck, has been a years-long mission for council member Durand. At the public hearing on the measure at the previous council meeting, she spoke passionately about how naive borrowers are drawn into a deepening cycle of debt by the lenders’ practices, which typically begin with a first payment due in two weeks, even though the borrower’s next paycheck may be a month away.
High interest rates compound the debt, making repayment more and more difficult as the loan balance grows. She said that, on average, such loans sometimes amount to as much as 250% APR.
Council member Larry Seljevold spoke in opposition to the measure. “I know debt can be a problem, but this is not the right way to address it,” he said. Calling them “legitimate businesses,” he compared their lending practices to credit cards, with their late fees and substantial interest rates. He cited one of his own that charges 29% APR, far in excess of a loan from a commercial bank.
He also questioned why the payday category should be limited to only four licenses and why they would be required to file reports with the city in addition to the state of Minnesota. “We don’t need to duplicate regulation by the state,” he said.
Durand countered, “A lot of people don’t have the luxury of credit cards, and a rate of 29% is not anything like the 250% charged by these local companies – not even close. This amounts to taking advantage of a vulnerable population.”
Asked if other municipalities have similar regulations, Leshovsky replied that a number of communities have taken similar steps tailored to fit their own situations. The standards proposed in the Moorhead law are similar to North Dakota’s statewide ordinance. Durand added, “Our own federal government restricts payday lending to military families to 36%.”
Council member Shelly Larson: “We limit the number of liquor licenses issued by the city. I see this as a similar situation. We don’t want our citizens to fall into this cycle of unending debt with interest that accrues every two weeks and not be able to get out.”
Council member Chuck Hendrickson noted that the measure also calls on the city to provide information and education on lending practices to potential borrowers.
The council approved the first reading of the ordinance by a vote of 6 to 1, with one member absent. It needs a second vote of approval at the next meeting Oct. 12 to become law.