Minnesota: Payday Lenders Bypassed Regulation by Calling Themselves Industrial and Thrift Operations

In Minnesota, Payday Companies Obtained Licenses As Industrial Loan And Thrift Operations To Avoid 1995 Law That Capped Payday Loans At $350.

“The three major fast-cash lenders operating in Minnesota — Payday America, Ace Cash Express and Unloan — have dominated the state’s payday lending market for years. Together they made more than $10 million in 2011. Payday America — the largest of all — earned about $6 million that year. None of them is licensed by the state as a payday lender. Instead, all three are licensed as Industrial Loan and Thrift operations — a designation created decades ago by the Legislature. Initially the designation was not intended to apply to payday loans, but now it is used as a loophole enabling lenders to offer larger loans and charge higher rates to Minnesotans. To understand that distinction, you have to go back to 1995 when the Legislature moved to minimize payday lending in the state. It created the Consumer Small Loan Lender Act, which regulated payday lending, capping the maximum amount of an individual loan to $350. Interest also was to be limited. “But the payday lenders are able to exploit it and are able to dodge the regulation that Minnesota decided it wants on payday lending by getting out from under the payday lending statute,” said Rep. Jim Davnie, DFL-Minneapolis. “It’s very problematic,” Davnie said. “It’s perfectly legal and an abuse of the legal system at the same time.” Companies operating as Industrial Loan and Thrifts don’t have the same statutory cap on the size of loans they can offer. Under that license, for example, Payday America offers loans of $1,000. And so, the state’s three leading small-loan providers switched to Industrial Loan and Thrift licenses. [MinnPost, 1/28/13]

• In 2011, The Top Five Industrial Loan Companies Issued Loans Totaling Almost $100 Million And Made Millions In Earnings. “Apparently, the shift was profitable. In 2011, the top five industrial loan companies issued 247,213 loans totaling $98.7 million. Among them, Payday America, Unloan and Ace Minnesota earned about $6 million, $3.3 million and $1 million respectively from 2011 operations, according to their reports to the Commerce Dept. Meanwhile, none of the companies that chose to do business licensed under the more restrictive Consumer Small Loan Lender Act has cracked the top five of Minnesota’s payday lenders in terms of earnings. In short, the shift to the Loan and Thrift designation enabled short-term, high-interest lending to thrive in Minnesota even though the state moved to limit payday lending – and while many other states outright banned the business.” [MinnPost, 1/28/13]
• MinnPost: “Consumers Can’t Decipher Between Those Under The Payday Lending Act And Those Using The Loophole.” “Consumers can’t decipher between those under the payday lending act and those using the loophole.” [MinnPost, 1/28/13]

Three Of Minnesota’s Four Biggest Payday Lenders Operated Under The Industrial And Thrift Statute Which Is Not Subject To The Payday Lending Law—Those Lenders Accounted For 70% Of Minnesota’s Payday Loans In 2006. “A second bill would require all payday lenders to work under the Minnesota Consumer Small Loan Act, passed in 1995 specifically to tighten regulations on payday lending. Three of Minnesota’s four biggest payday lenders have chosen in recent years to operate instead under the state’s industrial loan and thrift statute, which allows them to make bigger loans and charge higher fees. Those lenders accounted for about 70 percent of the payday loans in the state in 2006.” [Star Tribune, 2/24/08]