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Consumers have new protections involving debt collection and payday lending that affect thousands of Minnesotans. The new laws were passed in the 2023 Legislative Session and signed into law by Governor Tim Walz in May. The Minnesota Department of Commerce is implementing the laws.
“The new laws add consumer protections for Minnesotans who, due to life circumstances, are dealing with debt collectors or have turned to payday loans. Too often, borrowers have been harmed by falling into a debt trap of multiple payday loans each year,” said Commerce Commissioner Grace Arnold. “These reforms align with Commerce’s ongoing efforts to build a fair and equitable marketplace for Minnesota consumers and for Minnesota businesses.”
Debt collection:
Starting September 1, 2023, all debt collectors and debt collection agencies are required to provide a written document that lists Minnesota-based nonprofit organizations that provide credit counseling services to debtors. PDFs of the document are on the Commerce website in six (6) languages: English, Chinese, Hmong, Somali, Spanish and Vietnamese. Among the credit counseling services these nonprofits provide:
Helping debtors understand their rights and responsibilities.
Working with debtors, creditors, and collection agencies to satisfy debts.
For nonprofit credit counseling services that also help clients manage their debt, the nonprofits are licensed by Commerce for debt management services.
Payday loans:
The new law makes significant changes for lenders who offer consumer small loans and consumer short-term loans, otherwise known as “payday loans.” The law takes effect on January 1, 2024.
Data from Commerce’s Financial Institutions Division (see data table posted below) for Minnesota licensed lenders shows that in 2022, there were 25,096 Minnesotans took out almost $68 million in payday loans. The total number of loans by these consumers numbered 160,050 loans, which means borrowers averaged seven payday loans per year. 2022 volumes are far lower than 2017, when almost 45,000 Minnesotans borrowed over $133 million in payday loans.
Changes to payday loans include:
Maximum cap for loan finance charges and fees of 50% APR (annual percentage rate)
Requirement to analyze the borrower’s ability to repay for loans from 37% to 50% APR
No evasion provision to deter lenders from evading the new law limits and requirements.
Loan threshold for short-term loans increased from $1,000 to $1,300.
Requirement for all lenders to issue these types of loans under the new laws.
Consumers who typically turn to payday lending do so because they are “unbanked,” where the household has no one with a checking or savings account at a bank or credit union (i.e. bank), according to research by the Federal Deposit Insurance Corporation (FDIC). An estimated 4.5 percent of U.S. households (representing 5.9 million households), lack a bank or credit union account. Another 14.1 percent (representing 18.7 million households) were “underbanked” or had a bank or credit union account but used non-bank financial products and services.
As the FDIC’s “Get Banked” campaign explains, consumers get protections through banking, such as FDIC-insured accounts, and have access to banking tools to manage their money, such as direct deposits for paychecks, autopayment for monthly bills, and autosaving to help cover costs of unexpected emergency costs such as car repairs. By using a bank or credit union account, consumers can avoid fees for services such as cashing a check, paying bills and transferring money. Banking also helps consumers to build credit scores so they qualify for loans and credit cards.
See the FDIC campaign on YouTube: #GetBanked- There’s a Better Way! 30 Second Version.
ADVICE FOR CONSUMERS
Consider alternatives to avoid payday or short-term loans. If you are having trouble paying bills, contact those businesses and request an extension or negotiate a repayment. Check options such as credit cards or loans from a local bank or credit union.
Check the license status of a business operating in Minnesota. Before using an online lender, verify a lender has a license in Minnesota: Commerce’s License Lookup Directory. Commerce in the past has taken enforcement action against unlicensed online lenders, such as this consent order with MoneyLion.
Get credit counseling. Commerce’s website list has three nonprofit credit counseling services available for little to no cost to you for advice on managing debts and bills.
COMMERCE CONSUMER SERVICE CENTER
If you have questions or complaints with a debt collector or payday lender, contact Commerce’s Consumer Services Center by email: consumer.protection@state.mn.us or by phone: 651-539-1600.
File a complaint online: mn.gov/commerce/consumer/file-a-complaint
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