Payday lenders collected more than $82 million in fees from low- and middle-income Minnesotans between 1999 and 2012 - including more than

$1 million from one Duluth store - according to a recently released report by a group advocating new restrictions on the loans. But store and corporate officials defend their industry, noting it’s one of the most regulated in the nation, and far safer and cheaper than online and unregulated lenders.

Payday loans typically are low-dollar, high-interest loans that require borrowers to pay back in full on their next payday. In 2012 alone, 84 payday-lending stores amassed $11.4 million in fees statewide, Minnesota Commerce Department data show.

“What’s great about our customers is that I have a relationship with pretty much all of them,” said Andy McKinnon, manager of the Payday America branch at Pawn America on Central Entrance in Duluth. “They come in when they need us. We’re there for them.”

But, according to Minnesotans for Fair Lending, a typical borrower in the state takes out an average of 10 payday loans per year. The average loan is $380, and the average annual interest rate is 273 percent. One in five borrowers makes more than 15 payday loan transactions annually.

“All of this occurs because people fall into a debt trap,” said Rusche, executive director of the Joint Religious Legislative Coalition, one of 34 organizations in the fair-lending advocacy group.

Borrowers can fall into a debt trap when they take out repeat loans because paying off previous loans may make it harder to pay their monthly bills.

Although payday loan stores abound in low-income Twin Cities neighborhoods, payday lenders in Minnesota make most of their money from suburban and outstate borrowers, the report found. Minneapolis and St. Paul accounted for just 17 percent of the lenders’ fees between 1999 and 2012, while they collected 57 percent of their fees in suburban cities and 26 percent in nonmetro Minnesota.

St. Paul topped the list, generating $9.9 million in payday-loan fees during that 14-year period. Burnsville was second at $8.8 million in fees, followed by Robbinsdale, Bloomington and Coon Rapids with more than $5 million each.

In nonmetro Minnesota, payday lenders collected $5.2 million in Rochester during that period. Next up were St. Cloud at $2.6 million, Moorhead at $2.2 million and Duluth at $1.2 million.

Most of that Duluth total is accounted for by the Payday America branch. The store has been open about nine years and offers a cost-effective alternative with flexible options to its customers, McKinnon said.

“It’s an open-ended line of credit, where they can get a short-term cash advance on (a paycheck),” McKinnon said.

The number of customers the branch handles in a given week can range from 10 to 30. The branch experienced higher traffic during this winter’s recent spike in gas and propane prices, and as people’s cars sustained damage due to the growing number of potholes, McKinnon said.

Payday America charges about 2.75 percent a month interest, an annual fee and additional up-front fees, which vary from person to person based on the amount of the loan.  

“When they have a car repair, it’s cheaper than using a credit card,” he said of the loans, adding that they also are cheaper than title loans which, in places like Wisconsin, can charge very high interest rates. “With the propane and the gas being so high, they were forced to look for someone to help them.”

Vicky Baker, a 30-year-old caregiver, has been a customer at the Payday America branch in Duluth for almost four years. She said Saturday that she’s grateful for the service it provides.

“I don’t have a regular job, so things can be pretty difficult at times. I fix my own car, house and everything so this loan definitely helps me,” Baker said.

But the fair-lending group, which backs bills moving through the Legislature, said reforms are needed to protect people from predatory loan practices. One would cap the number of loans a payday lender could make to a single borrower at four per year and take steps to ensure lenders don’t make loans that a borrower can’t repay.

State Commerce Commissioner Mike Rothman said his agency is calling for a law that would cap payday lenders’ annual interest rates at 30 percent.

But Chuck Armstrong, chief legislative officer for Pawn America and Payday America, argues that his industry already is abiding by one of the nation’s toughest sets of state regulations and giving customers some of the country’s lowest interest rates.

If more restrictions are placed on them, “where will these people go?” Armstrong said. “They’ll go to the Internet, which is unregulated.”

“Minnesota is probably the lowest cost of fees and interest (rates) in the country already,” he added. “We’re inexpensive; there are no complaints.”

Armstrong said about 34,000 people per year statewide use payday loan services, and noted that his company has no complaints filed against it with the Attorney General’s Office or the Department of Commerce.

“The consumer’s not complaining about our services,” he said. “The people who are benefiting by this service don’t have any complains.”

He criticized the Minnesotans for Fair Lending report as a “lame argument” for citing

figures on the industry’s profits without any context as to how the loans also help consumers save money by avoiding heavy fees for bounced checks and other, more costly, loan sources.

 “What were the costs of people who were able to pay their car payment or their home payment on time?” Armstrong said. “They’re not showing the benefit that people got from these fees, being able to feed their families, pay their bills, (something) that they couldn‘t have done otherwise.

“Our default rate is less than two percent,” Armstrong said. “We only loan to those who can afford it and can pay it back. We don’t want them (customers) to fail.”

Armstrong said a far bigger threat to consumers comes from lenders on the Internet and unlicensed lenders operating as modern-day loan sharks.

“Minnesota is a very low cost (state) and has tight restrictions for what can be charged,” he said. “We’re an easy target because we’re bricks and mortar, and we have to report our numbers.”

Attorney General Lori Swanson recently has filed lawsuits against eight Internet lenders that made payday loans charging illegally high interest rates.

McKinnon said that at his store most loans run only until the next payday, which can be bi-weekly or monthly.

“If they pay that off in full, once they pay it off they’re done with it,” with no added interest, he said.

McKinnon said his clients don’t fall into a cycle of debt for failing to repay their loans, because they have an option of refinancing into a lower amount.

“We can help them get a lower loan,” he said. “I don’t see that happening as much as the people say.”

News Tribune staff writer Jason B. Johnson and the St. Paul Pioneer Press contributed to this report.