Minnesota is one of the handful of states with interest rate caps, effectively keeping payday lenders at bay. But three lenders who used the Internet to do business with Minnesota residents have landed in court.
Minnesota Attorney General Lori Swanson has filed three separate lawsuits against online payday lenders whose fees exceeded the interest rates allowed under state law and otherwise failed to comply with state licensing rules and consumer protections.
The lawsuits were filed against Eastside Lenders, LLC of Delaware; Global Payday Loan, LLC of Utah; and Jelly Roll Financial, LLC of Utah. None of the three companies has a license with the Minnesota Department of Commerce that allows them to make small consumer loans to Minnesota residents, Swanson says.
All three companies charge borrowers $30 in interest for a $100 two-week loan, which is a 782 percent annual interest rate. In addition, Eastside's website offers loan repayment periods as short as eight days, providing for the annualized interest rate on a $100 eight-day loan to be 1,368 percent.
Global Payday's website offers loan repayment periods as short as four days, providing for the annualized interest rate on a $100 four-day loan to be 2,737 percent.
Desperation
Swanson and Dana Badgerow, President and CEO of the Better Business Bureau of Minnesota and North Dakota, said the current economy has led many people to look for instant payday loans on the Internet. A payday loan is a short-term, high-interest loan, often under $500, targeted at borrowers who need money between paychecks.
The contract generally requires the borrower to pay back the loan in 14 days, or less, when the borrower's next paycheck arrives. The attorney general and BBB warned citizens to be on guard against Internet payday lenders that evade state interest rate laws and consumer protection laws by operating online without proper state licensure and that in some cases make unauthorized withdrawals from consumers bank accounts.
"Many people are in a tight spot financially and looking for help, but Internet payday lenders that purposefully evade state laws can make a tough financial situation even worse," Swanson said. "People who take out payday loans from unregulated Internet lenders hope to borrow a small amount of money that they'll repay soon. But the high interest rates, recurring finance charges, and other traps can cause the amount of the loan to explode until it becomes unmanageable."
Minnesota payday lending laws contain several consumer protections. For example, for loans less than $350, Minnesota law caps the fees that may be charged on a sliding scale as follows: $5.50 for loans up to $50; 10 percent plus a $5 fee on loans between $50 and $100; 7 percent (minimum of $10) plus a $5 fee on loans between $100 and $250; and 6 percent (minimum of $17.50) plus $5 fee on loans between $250 and $350.
For loans between $350 and $1,000, payday lenders cannot charge more than 33 percent annual interest plus a $25 administrative fee. In addition, payday lenders must itemize their fees and interest charges in their contracts, and state law prohibits certain unfair contract terms.
