A bill to place new restrictions on payday lenders has passed the Minnesota House.
The DFL-controlled House approved the bill on a vote of 73-58 Thursday. Support for the legislation was split almost entirely along party lines.
Payday loans are small, short-term loans made by institutions other than banks or credit unions, usually at high interest rates that can top 300 percent annually.
The bill would limit lenders to four payday loans per borrower, per year. Additional loans would be allowed under certain circumstances, and then only at a limited interest rate.
Those circumstances would include those who have to pay back a student loan, child support payment, mortgage or residential rent payment. The interest rate for the fifth loan would be capped at 36 percent.
The average number of short-term loans taken by one person per year is 10. The default rate on those loans is less than 2 percent in Minnesota.
FOX 9 reports the bill would also prevent lenders from giving payday loans to anyone who already owes more than 41 percent of their income to other debts and obligations – like housing.
The bill would also require that lenders determine if a borrower can repay them, before issuing the loans.
Supporters say it will help keep borrowers from getting trapped in the cycle of using payday loans.
"It's a trap," Rep. Zachary Dorholt, DFL-St. Cloud, told the St. Cloud Times. "I consider this to be small-scale predatory lending."
Critics say it eliminates an option for people who are trying to stay financially afloat.
"If I need that fifth loan, what'll I do?" said Rep. Greg Davids, R-Preston. "Help the folks pay their rent; help the folks pay their mortgage."
The Senate has not voted on a companion bill yet, but a vote on it may not be far off.
There are a number of differences between the bill approved in the House Thursday and one moving through Senate committees. If it is approved in the Senate negotiators would likely have to work the differences before a bill is sent to Gov. Mark Dayton.