By Martin Moylan

MPR News/90.1 FM

Research indicates that 4 in 10 American adults don’t have the money to pay for a sudden, unexpected expense of just several hundred dollars — like a car repair.

The solution is often a payday loan. That’s an expensive way to borrow money, because annual interest rates can reach several hundred percent. But some organizations are trying to help people avoid payday lenders and borrow money more cheaply.

Melissa Juliette of White Bear Lake knows what it’s like to be trapped by payday loans. She now works at the University of Minnesota’s Twin Cities campus. But two years ago, she was in a financial bind.

She was a single parent and got hit with unexpected medical bills for her son and daughter. She took out a payday loan for a few hundred bucks.

“I thought I could pay it back right away,” she said.

But she couldn’t. On top of unexpected medical bills, her income dropped by surprise, leading to more payday borrowing. After about five months, she had about $1,200 in loans.

Every two weeks, she owed about $100 in fees and interest alone. That works out to an annualized cost of about 220 percent.

“I don’t feel they need to charge the fees that they do,” she said. “They’re astronomical and unaffordable.”

Payday lenders contend high rates are necessary to make loans of a few hundred dollars worthwhile. They argue the vast majority of customers feel satisfied — not exploited — and that while the annualized interest costs are high, loans are meant to be held for just two weeks.

Juliette said she couldn’t cover her rent, food and other essential expenses and still make loan payments. This is a classic debt trap. The Consumer Finance Protection Bureau said many borrowers wind up in default, facing a debt collector.

Lenders threatened to garnish Juliette’s paycheck. But she connected with Minneapolis-based Exodus Lending, which provided an interest-free loan to pay off her debts.

The nonprofit’s executive director, Sara Nelson-Pallmeyer, said Exodus has helped about 200 payday loan borrowers since April 2015.

“We started because a payday lender opened on the same block as Holy Trinity Lutheran Church in South Minneapolis,” she said. “People within the congregation were alarmed and disturbed by another outfit like this taking people’s money out of the community.”

Exodus gets its capital in the form of interest-free loans from supporters. Exodus then makes no-cost loans of up to $1,000 to people struggling with payday loans.

Exodus has made about $170,000 in loans. And 86 percent, are current on payments or have been paid in full, like Juliette’s.

Nelson-Pallmeyer’s advice for people in a financial bind: “Do anything but take out a payday loan.”

But last year, Minnesotans took out some 330,000 such loans. They borrowed about $133 million, promising to pay the money back with upcoming paychecks.

Under Minnesota law, interest rates on payday loans are not supposed to exceed 33 percent. The cap applies only to lenders subject to state regulation. But when you add in fees, loans of a few hundred dollars can effectively have annualized costs of 358 percent or more.

Exodus will soon have company helping people avoid payday lenders. A new North Minneapolis organization called Village Financial Cooperative describes itself as a black-led credit union. The group plans to serve people in Hennepin and Ramsey counties and focus on community development. Anyone who lives, works or goes to school or church in either county can be a member.