Minnesota's largest chain of pawnshops is asking the Legislature to loosen state consumer lending rules as it develops a new line of short-term loans that use high-dollar items such as boats and cars as collateral.
The bill, which could come to a House vote as soon as Thursday, would give Pawn America more flexibility to charge fees and structure terms for the complicated transactions -- a necessary change to make this side of the business viable, a company spokesman said.
Critics, however, say the change risks undermining consumer protection laws governing pawnshops and note that the owner of Pawn America is a major donor to GOP causes.
The new line of lending, called My Bridge, is pegged to items that must be stored in large warehouses and carry additional costs such as title searches and insurance. Pawn America has been offering the loans for about a year through its Burnsville headquarters. Current state law imposes tight restrictions on pawnshop fees and doesn't allow the type of flexibility the company says it needs to cover the costs of My Bridge loans.
"To do these types of loans it's expensive on our end," said Chuck Armstrong, Pawn America's community affairs director. "We need to be able to recoup some of those charges, otherwise it's not profitable for us to do. If it's not profitable, we're not able to provide this service to the customer."
Opponents of the change say it's a way for Pawn America to get out from under laws that govern pawnshops and move into a less-restrictive area of state law that governs financial institutions.
Ron Elwood, supervising attorney with Legal Services Advocacy Project, which represents low-income Minnesotans, said it's a "stealth and undisclosed way" for the company to evade tighter regulation.
Elwood argued that the loans, while they may be larger than typical pawnshop amounts, are still a type of pawn transaction and should be treated as such under the law. That would mean fee limits, reporting requirements and other rules that regulate the pawn industry, many of which are under local control.
"In our view this is breathtakingly broad," Elwood said. "This raises so many questions. It opens up so many potentially unintended consequences."
A second concern for opponents is the fact that Pawn America's owner, Brad Rixmann, is a major political contributor, particularly to the GOP, which controls the Legislature.
"It is another example of Republicans siding with special interests over middle-class Minnesotans in the economy right now," said House Minority Leader Paul Thissen, DFL-Minneapolis.
Campaign finance records show Rixmann gave more than $150,000 in state campaign contributions in 2010 and 2011, almost all of it to Republicans. He gave $59,800 in 2010 to the state Republican Party and an additional $30,000 to the Republican caucuses in the Senate and House. But he has also given to the DFL, including $2,000 to the party's Senate caucus in 2010.
Rixmann gave $50,200 to the state Republican Party last year, the same year the bill passed the Senate in a largely party-line vote.
In October, Rixmann, who also owns Payday America loan stores, hosted a pheasant hunting event to raise campaign money for House Republicans. A flier that circulated through the State Capitol last fall said the two top Republicans in the House, Speaker Kurt Zellers and House Majority Leader Matt Dean, would attend the event at the Minnesota Horse and Hunt Club in Prior Lake.
Change 'made sense'
Zellers said on Wednesday that he was not familiar with the legislation and downplayed any Republican ties to Rixmann. "He's a Minnesota business owner that, you know, gives to both Republicans and Democrats," said Zellers, who said Rixmann was also active in dealing with child poverty issues.
"I know him as well as I do any of our Republican donors," Zellers said.
Rep. Sarah Anderson, R-Plymouth, the chief House author of the legislation, said that two lobbyists brought her the proposal -- she said she did not know who they represented -- and that the idea "made sense."
"I don't know [Rixmann] personally. I've met him, yeah, certainly," she said. She said she didn't know how much Rixmann gave to the GOP. "I wouldn't have known what he contributes, or didn't contribute, to the party," she said.
Armstrong said the political contributions were not intended to help his boss' personal businesses but were based on his conviction that pro-business candidates are good for Minnesota.
"Brad wants to see the business culture of this state revived," Armstrong said. "It has nothing to do with us. He looks at the big picture. He wants Minnesota to be competitive in business again."