MN Supreme Court: Payday loan limits constitutional

The Minnesota Supreme Court today upheld the state’s payday lending law that curbed high-interest, short-term loans to mostly low-income people who can’t stretch a paycheck.

The decision comes as some lawmakers and advocacy organizations try to restrict payday lending even further.

The Legislature tried to pass tougher legislation in the last days of the 2014 session under pressure from religious groups whose members were being decimated by triple-digit interest against future paychecks. But Republicans blocked the measure, arguing it removes options for low-income families.

Nonetheless, payday lenders have opposed existing regulations, which cap interest rates and limit the number of loans that can be made to a person, arguing it’s unconstitutional.

A Delaware firm, that makes payday loans over the Internet at interest rates as high as 1,369 percent, argued the practice is beyond the reach of state regulators.

But today the Supreme Court rejected the assertion that the law interferes with interstate commerce, which is unconstitutional, because the Minnesota law only applies if the person receiving the loan resides in Minnesota.

“It is true that Minnesota’s payday-lending law requires payday lenders to provide more favorable ‘prices’ for Minnesota residents — which, in the context of a loan, includes lower interest rates and fees—than those offered to borrowers from other states,” Justice David Stras, a Tim Pawlenty appointee to the court, wrote in a unanimous decision (pdf).

“However, unlike the laws invalidated in [U.S. Supreme Court cases] Healy and Brown-Forman, Minnesota’s payday-lending law does not tie the requisite terms and prices for loans to the business conducted by Integrity [lending company Integrity Advance, LLC] or other payday lenders in other states,” Stras wrote.

Minnesota Attorney General Lori Swanson sued five companies in 2011 amid accusations from people who filled out online applications that the firms stole their personal data.

“Unlicensed Internet payday lenders charge astronomical interest rates to cash-strapped Minnesota borrowers in contravention of our state payday lending laws. Today’s court ruling signals to these online lenders that they must abide by state law, just like other “bricks and mortar” lenders must,” Swanson said.

“The folks that take these loans aren’t second class citizens,” Rep. Joe Atkins, DFL-Inver Grove Heights, said when the House passed the tightened reforms last year. “They’ve just fallen on hard times, is all, and they’re not idiots. They should not be treated like idiots. They shouldn’t be treated like lesser people just because they’ve had a difficult time, and yet that is what Minnesota law allows.”

In a 2014 study, Pew Research considered Minnesota in the middle of the road when it comes to regulating payday lending, noting that about 4 percent of the state’s residents use payday loans.