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Kevin Dahle sponsors legislation to curb payday lending abuse

<tor Kevin Dahle, DFL Northfield, is sponsoring legislation to discourage “payday lending,” a type of lending practiced by lenders who charge high fees for cash advances that must be repaid in full by the borrower’s next payday.

Under a payday loan, a consumer borrows money against his or her next paycheck in one of the following ways: by writing a post-dated check for the amount of the loan plus fees, by permitting the payday lender to debit the borrower’s account on the day the paycheck is deposited or by accessing a line of credit provided by the payday lender.

Payday lending practices have exploded in Minnesota. Since statistics were first reported in 1999, over a million payday loans have been made by payday lenders in the state, with countless more made over the Internet.

“Payday loans are an expensive product and tend to trap borrowers into a downward spiral of debt,” Sen. Dahle said. “The difficulty of repaying these loans often leads to taking on more loans – new ones to repay the previous ones – which can lead to financial disaster and bankruptcy.”

According to the Center for Responsible Lending, the average number of these loans per borrower is nine per year. Moreover, 90 percent of borrowers take five or more per year, and 24 percent take twenty-one or more per year.

“My bill imposes a requirement that after three consecutive payday loans in any six-month period, the fourth loan automatically converts into an installment payment loan to allow borrowers to escape the debt trap,” Sen. Dahle said. “In addition, it makes it clear that Internet payday lenders are required to follow Minnesota’s law.”

Sen. Dahle said the bill’s goal is to help curtail the practice of payday lending in the state, which can especially cripple individuals and families in today’s economy. The bill has been referred to the Minnesota State Senate’s Commerce and Consumer Protection Committee.

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