Payday Loans in Minnesota: The Downfall of the Tax Refund Windfall

Published On: 21st August 2015

From the internet

For many individuals in Minnesota, their tax refund is a windfall for them. It is the opportunity to receive some money that will help them pay certain expenses, such as bills they are behind on or something they want to pay off so they can free up some of their regular income. It is a moment to catch up.

Unfortunately, there is one type of debt that consumes tax refunds every year and that is the payday loan.

Payday loan companies are able to legally charge high interest on their loans, which means the borrower has to pay back much more money than they borrowed.

Now lawmakers are slated to introduce legislation in 2016 to help curb payday lending, but they know the fix isn’t going to be simple.

Previously, legislators proposed limiting the number of payday loans a consumer could take out to four, but the effort failed when one payday loan company spent a lot of money to kill the bill.

Lawmakers also proposed capping the interest rates, but the payday loan industry opposed this by saying that the payday loan industry would be completely wiped out in Minnesota if this happened.

One state representative says that reforms wouldn’t kill the industry because there isn’t a desire to put them out of business, but they want to protect consumers throughout the state, such as those receiving tax refunds that they could use to make their lives better.

Many individuals have income tax refunds that are completely eaten up by repayment of such loans.

Of course, an individual can do whatever they want with their income tax refund because it is their money, but lawmakers want to see the money spent wisely. There is a lot of encouragement for individuals to seek out other options before turning to a payday loan, such as working out payment plans for creditors or taking advantage of emergency aid when it is needed.

Although a specific plan has not yet been created, other states have implemented reforms that have allowed lenders to stay in business, but the balance is much better when it comes to protecting the consumers.

Three main types of reforms have been put in place: lower interest rates, limiting the number of loans a person can take out, and giving consumers longer repayment periods with payments that are more affordable.

The only issue with the three types of reforms is the limit to the number of loans because then a person isn’t able to repay a loan and take out another, possibly leaving them broke until they get paid again. Many individuals take out one loan after another in order to keep money in their pockets, which is actually where payday lenders make a great deal of money.

Because a person may have to make a balloon payment to pay off a loan, they may turn to their tax refund to pay it off so they don’t have to with their paycheck.

Fortunately, there are some nonprofits working on creating credit-building products for individuals with low incomes so that they can move away from payday loans and make better use of their money.