By Chris Farrell and Maja Beckstrom
The crisis often starts with a car repair or surprise medical bill. It can end with a consumer deep in debt having paid hundreds or even thousands of dollars in interest and fees to a payday loan company.
Payday loans are short-term consumer loans with fees so high that borrowers end up paying what amount to triple-digit interest rates. The loans have come under more criticism recently as payday lenders stepped up online advertising to people squeezed by the pandemic recession.
In January, Illinois became the latest state to pass a 36 percent interest rate cap on payday loans. Consumer advocacy groups are supporting a similar bill in the Minnesota Legislaturemodeled on protections in the Military Lending Act, which was enacted in 2006 to cap interest rates for active duty members of the military and their families.
Do payday loans offer a legitimate service to people in a crisis? What better alternatives exist? How should consumer lending be regulated?
MPR News guest host and senior economics contributor Chris Farrell talked to a law professor and a nonprofit advocate about how to address payday loans.
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Listen to the MPR program here.