How payday lenders suck the poor into endless cycles of debt

Desperate clientele and triple-digit interest rates keep payday stores going strong in Minneapolis.

Desperate clientele and triple-digit interest rates keep payday stores going strong in Minneapolis.

All Corri Varner needed was a new pair of glasses with transitional lenses so she could drive to church without being blinded by the sun. They were $200, so she thought about selling some of her possessions at the Pawn America in Burnsville. But then the storefront next door caught her eye.

Payday America advertised instant loans she could pay back in monthly installments. Varner took out $200, which came with a $30 fee. She could reasonably chip away at the loan over a few installments, she thought. Then Payday clarified – it would need the whole loan repaid the following month, including the 175 percent interest, a rate that would make a loanshark blush.

Varner enlisted a friend's help to pay off the $200 in time, but it left her account dry with mounting bills. Then her car broke down. Payday was there to offer her another loan, no questions asked.

“What made it seem like a loop and what made it so easy to do was the fact that it drains your account so you have to go take it out again,” Varner says. “It wouldn’t be so bad if you didn’t have to add it all together and give it back at one time. That’s what put the strain on me.”

Varner returned every month for half a year, but she could never get ahead of her debt. Every three months Payday wanted to sit down and go over her bank statements to see how she spent her money. “They made it seem like they were trying to see how you’re doing by your own money, but they didn’t need to see all of that,” she says. “That was personal to me.”

A number of cases like Varner’s started popping up in the Cooper neighborhood about four years ago, catching the attention of the clergy at Holy Trinity Lutheran Church. A Payday had just set up shop in the neighborhood at the time, and they were hearing recurring horror stories from congregants about the triple-digit interest rates, the perpetual debt cycle that kept business afloat.

Parishioner Meghan Olsen Biebighauser set up an alternative lending program designed specifically to pluck folks out of their relationships with Payday. Exodus Lending would pay off their existing debts up to $1,000 and issue them new loans in the same amount, which they can pay off in 12 installments interest-free.

“We heard people in financial crisis felt like they had nowhere else to go,” Olsen Biebighauser says. “They’d take out a loan they thought they’d be able to pay off, or the initial terms weren’t clear, we’ve heard all sorts of stories. The reality is that they target communities where people are already struggling financially, to trap them in this re-borrowing.”

While other states have banned the fast cash industry's tactics, Minnesota’s legislature has consistently avoided any serious reform of predatory loans. Tuesday, Rep. Keith Ellison (D-MN) will revisit the issue with the local clergy at Greater Friendship Missionary Baptist Church from 8:30 to 9:30 a.m.