SF3831

Purpose

• Clarify and expand how Minnesota regulates small and short-term consumer loans to include earned wage access payday loans. The goal is to ensure online and traditional lenders are covered by the same regulatory framework, with clear definitions and consumer protections.

What the bill would do

• Include earned wage access payday loans in the definitions of consumer small loans and consumer short-term loans.
• Create clear definitions for two loan types:
  • Consumer small loan: cash advance of up to $350, repayable in a single installment, with possible forms like promissory notes or deferring a personal check, and may involve an account transfer fee or related charges.
  • Consumer short-term loan: up to $1,300, with a repayment structure within 60 days that requires a minimum payment of more than 25% of the loan balance or similar terms, with each new cash advance considered a new loan.
• Regulate lenders who may operate without a physical Minnesota location if they lend electronically (via Internet or mobile app) to Minnesota residents.
• Define key terms used by lenders and regulate the fees charged to borrowers.

Main provisions and requirements

• Definitions and scope
  • APR and fees: Establish how annual percentage rate (APR) is calculated (actuarial method or US Rule method) and define what constitutes a fee (any amount charged beyond interest/finance charges, including memberships, subscriptions, convenience fees, expediting fees, tips, or donations).
  • Lenders and activity: Lenders include entities that market, underwrite, service, arrange, or collect loans, and online-only lenders are covered if they target Minnesota residents.
• Licensing/filing for lenders
  • Filing requirement: Non-financial institutions must file with the commissioner as a consumer small loan lender before engaging in such lending to Minnesota residents.
  • Filing details and cost: The filing must be on a form prescribed by the commissioner, with a $250 fee per place of business, and must show liquid assets of at least $50,000 plus a biographical statement about the principal person in charge.
  • Revocation: The process to revoke a filing mirrors that for regulated lender licenses.
• Definitions for short-term loans
  • Consumer short-term loan: A loan up to $1,300 with a structure that requires a payment schedule or a default expectation within 60 days and a minimum payment exceeding 25% of the principal.
  • Special exclusions: Excludes certain secured transactions like those where default recovery is only against pledged collateral (e.g., physical goods).
  • Lender scope: Applies to individuals or entities offering such loans, including online-only lenders.
• Definitions for small loans
  • Consumer small loan: Cash advance up to $350, repaid in a single installment, with specified forms of evidence (e.g., promissory note, deferral of a personal check, or preauthorization of an account transfer).
  • Lender scope: Similar to short-term loans, includes online/lack of a Minnesota physical location.

Significant changes from current law

• Explicitly includes earned wage access in the regulatory framework for consumer loans.
• Extends regulatory coverage to online and mobile-app-based lenders that serve Minnesota residents.
• Introduces a formal filing and asset/liability requirements for non-bank lenders operating in Minnesota.
• Sets specific loan size thresholds and repayment mechanics for both small loans and short-term loans, including how new advances are treated.
• Establishes a consistent approach to APR calculation and the fees lenders may charge.

Potential impacts

• Greater regulatory oversight of online lenders and earned wage access products.
• Additional compliance costs for lenders (filing fees, asset requirements, biographical disclosures).
• Enhanced consumer protections through standardized definitions, APR calculations, and fee disclosures.

Definitions (glossary in plain terms)

• Earned wage access payday loan: A type of small or short-term loan tied to an employee’s wages that is treated as a consumer loan under these rules.
• Annual percentage rate (APR): The yearly cost of borrowing expressed as a rate, including interest, fees, and other charges.
• Fee: Any charge beyond interest or a finance charge; examples include membership, convenience, or expediting fees, or tips.
• Consumer small loan: A short-term loan of up to $350 repayable in one installment.
• Consumer short-term loan: A loan up to $1,300 with a repayment plan or scheduled payment within 60 days and a minimum payment over 25% of the balance.
• Lender: Any person or entity offering, soliciting, underwriting, servicing, or collecting such loans, including online-only operators.
• Commissioner: Minnesota’s commissioner of commerce.

Relevant Terms

earned wage access payday loan, consumer small loan, consumer short-term loan, APR, annual percentage rate, fee, promissory note, preauthorization, account transfer, recourse, nonrecourse, online lender, Internet loan, mobile application, liquid assets, biographical statement, filing, regulated lender, Minnesota residents, default, collateral, secured transaction, revolving credit, advance, principal balance.