State funding could help more people escape cycle of payday loan debt

When Missy Juliette of White Bear Lake became a single mother two and a half years ago, it looked like she was going to be OK. But then her son’s social security survivor benefits were cut by $200, and then the family’s monthly expenses increased $200 a month due to therapy co-pays for Juliette’s two children.

“With that, I fell behind on all of my bills. Every single one of them, including my rent,” despite a steady job at the University of Minnesota, she said.

Juliette turned to a payday loan – due in two weeks – hopeful that the $480 cash infusion was all she needed to get ahead of her bills. But steep fees and high interest rates quickly spiraled out of control and she was forced to get three additional loans to keep up with the payments.

Her story isn’t uncommon in Minnesota, Sara Nelson-Pallmeyer, executive director of Exodus Lending, told the House Jobs and Economic Development Finance Division Tuesday.

Payday loans are designed to trap people in a cycle of “debt and indebtedness,” but Exodus Lending helps people, like Juliette, escape and get back on their feet, Rep. Jim Davnie (DFL-Mpls) said.

Davnie sponsors HF367 that would appropriate $100,000 in Fiscal Year 2020 to provide the nonprofit with grant funding to support its program. The bill was held over for possible inclusion in an omnibus bill. It does not have a Senate companion.

Payday loans are marketed as “quick-fix solutions” to financial emergencies and usually range from $200 to $500, but people are almost always forced to take out additional loans to cover the high interest rates. Many have to take out five to eight additional loans to cover the expenses incurred by their initial loan and, on average, borrowers pay more than four times the amount of their loan in interest, Nelson-Pallmeyer said.

In 2017, more than 330,000 payday loans were issued to Minnesota borrowers, costing them nearly $10 million in interest and fees – money that could have gone to groceries, rent, utilities, child care, gas, or other necessities, she said.

Exodus Lending helps people by paying off their payday loans upfront and allowing them to pay off the debt in interest-free monthly installments over a 12-month period. Clients are also provided with financial counseling to help them get back on their feet, Nelson-Pallmeyer said.

State funding would help Exodus Lending increase its capacity through additional staffing, expand outreach in areas including Blue Earth, Olmstead, and Stearns counties, and begin reporting their participants’ payment histories to help improve their credit scores, she said.

Exodus Lending began offering loans to clients from across the state in 2015 and worked with 54 new participants in 2017 and 100 in 2018. They have already taken on 17 new clients this year, Nelson-Pallmeyer said.

“A handful” of program participants may came back to Exodus Lending for help a year or two after paying off their loans, but most don’t return to payday lenders, she said.