Can we solve the payday loan debt trap?

A payday loans store seen open.
High interest rates on short-term consumer loans can spiral into crushing debt. On Tuesday, guest host and senior economics contributor Chris Farrell talks to a lawyer and a nonprofit advocate about the latest efforts to curb payday loans.
Photo by Steve Rhodes via Flickr 2009

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 Legislature modeled 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?  

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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.


  • Sara Nelson-Pallmeyer is the executive director of Exodus Lending, a nonprofit organization in the Twin Cities that refinances payday loans as no-interest loans. 

  • Creola Johnson is a law professor at The Ohio State University Moritz College of Law in Columbus, Ohio. 

Use the audio player above to listen to the program.

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