Local view: Payday loans’ ‘helping hand’ keeps people away from unsavory options
On March 24, the News Tribune took a balanced look at a debate occurring down at the Capitol around payday lending (“Payday lenders: Helping hand or debt trap?”). Legislation being considered this session would have real ramifications for real people.
I can tell you as a person who would find himself in the crosshairs of this legislation that the headline of the article was both right and wrong. It is right that there are Internet lenders and other bad actors like loan sharks who do indeed trap people in cycles of debt. They are unregulated and untouchable by Minnesota law and regulators. But the article and the Legislature are wrong to include safe places like PayDay America anywhere near this discussion.
A group called the Joint Religious Legislative Coalition is deceptively bundling good, bricks-and-mortar companies like PayDay America with faceless, nameless predators, and is trying to squash all of them in an apparent attempt to legislatively (i.e., magically) solve indebtedness. The religious community seems to want to stop us from utilizing a line of credit from stores in Duluth. But in its zeal to rid Minnesotans of the “cycle of debt,” it exposes real people to bad options, thereby creating more victims than those saved — and probably by a long shot.
If this legislation passes, where do the churches think a person in need of a helping hand will go? Who will they ask for a cash advance to pay the rent or to buy groceries? The legislation under consideration would prohibit anyone from going to a PayDay America or other legitimate payday-loan business if the person does so too many times in a year or month.
When a person struggles for three or four months and is prohibited from using a safe option, all of a sudden that faceless, nameless Internet predator starts to look like a last resort. Imagine if the religious community pushed for a law to prohibit consumers from using their credit cards more than eight times in a year and required us to pay off our credit card debt each month. Would these be good habits? Of course. But such requirements are woefully unrealistic in today’s world and make for terrible state policy. This is the problem with trying to lump a safe form of consumer finance with the loan sharks and Internet lenders that are the true “debt traps.”
Credit cards, short-term lines of credit and even checks are used when consumers don’t have cash readily available in their pockets for expenses. But carrying a credit-card balance, bouncing a check or taking out a short-term line of credit all come with costs. Consumers know that. In fact, credit-card balances can come with much higher costs than some of the safe places consumers like me attain lines of credit. These fees often pale in comparison to the cost of a bounced check.
I think there would be very little opposition in St. Paul if the religious community was pushing legislators to focus on the real bad actors: the out-of-state and Internet lenders who are by definition avoiding regulation and reporting. But that isn’t what’s happening. And it’s a shame.
With a variety of options on the table, consumers can avoid the bad ones. But in order to have an honest discussion about this or any other public-policy issue, we first have to make sure we’re talking about the same thing. That isn’t happening right now, and there are real people who will get hurt.
If the religious community really wants to end the “debt trap,” the last thing it should do is slap the “helping hand.”
Frank Jerks lives in Hermantown and is a PayDay America customer. He wrote this at the request of the News Tribune.