When people don’t have bank accounts or need cash fast, some turn to “payday lenders” who charge interest rates higher than standard bank rates for short-term loans of $1,000 or less payable within 60 days. However, the “serial borrowing” that may occur if lenders allow customers to keep rolling over their loans can be like quicksand, sinking cash-strapped people into deep debt.
A new law adds safeguards to existing regulations to protect these borrowers from harm. Sponsored by Rep. Jim Davnie (DFL-Mpls) and Sen. Kevin Dahle (DFL-Northfield), it tightens payday lending rules and creates penalties for lenders who violate them.
The law requires payday lenders to:
• keep detailed records about their transactions and to track the dollar amount collected in interest payments on the loans, how many borrowers they serve, the frequency of customer borrowing, the average rate of interest charged and other data;
• submit an annual report of that data to the commerce commissioner; and
• provide the borrower with a copy of the loan agreement in the language that was used to negotiate the loan.
Penalties for noncompliance apply to any loan made to a Minnesota resident even if made on the Internet.
Except for certain reporting requirements, which are effective retroactively from Jan. 1, 2009, the law takes effect Aug. 1, 2009.
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