Center for Responsible Lending calls on other states to follow suit
A consumer advocacy group that focuses on fairness in the financial marketplace is applauding a new Minnesota law that caps annual interest rates on payday loans at 36%.
The Center for Responsible Lending (CRL) says the new measure will protect consumers who currently face interest rates as high as 220% on payday loan products in Minnesota.
The new law takes effect on January 1, 2024.
To date, 20 states and the District of Columbia have passed laws to cap payday lending rates around 36% APR, including fees, or requiring other measures to ensure that payday lenders do not impose interest rates and financing terms that create a long-term debt trap for consumers.
CRL said this new law will benefit consumers in the state and called on states that have not yet enacted rate caps to take action.
"We are pleased that Minnesota lawmakers recognized both the severe financial harm caused by predatory payday lending and the nearly universal support among citizens for strong reform to stop that harm," said Yasmin Farahi, deputy director of state policy for CRL.
Farahi said that absent federal action, it is time for all states to take similar action and protect their citizens from payday lenders.
"We recommend that all states end predatory payday lending by setting an interest rate cap of no more than 36%, including fees, to protect consumers and communities from the wealth-stripping tactics of unscrupulous lenders."
While a bill capping payday loan rates at 36% nationwide has been introduced in Congress, it has yet to pass both the House and the Senate.