A last-minute bill pending in the state Senate and backed by an out-of-state auto-title company would let lenders loan Michigan consumers money against their cars at an annual interest rate of nearly 300 percent.
Such auto-title loans aren't legal in Michigan, but a bill sponsored by Senate Majority Leader Randy Richardville, R-Monroe, which could be voted on as early as Tuesday, has been pushed onto the Senate floor that would add a loophole to the state's 1917 Pawnbrokers Act. An identical bill in the state House is sponsored by Livonia Republican John Walsh.
The proposed change to the nearly 100-year-old law would allow pawnbrokers to charge a 20 percent monthly "usage fee." That would let consumers borrow against their cars while continuing to drive them.
"It's dangerous. It's a predatory form of lending," said Lisa Stifler, an attorney with the Center for Responsible Lending in Washington, D.C., a non-partisan nonprofit.
According to the center, auto title loans are renewed an average of eight times, causing borrowers to pay more than twice the amount they borrowed in just interest. One in 6 auto title borrowers, the center said, loses their car to repossession. While the auto title business makes $1.9 billion in annual loans, those lenders rake in $4.3 billion in fees.
In Michigan, the law sets pawnshop interest rates at 3 percent a month, meaning that $1,000 borrowed for a year will cost a consumer $360 in interest after 12 months. Under the new bill, pawnbrokers could add a 20 percent monthly usage fee for vehicles, meaning that a 12-month, $1,000 auto title loan would cost the borrower $2,760 in interest, on top of the original $1,000 borrowed.
Like payday loans, auto title loans are short-term products targeting consumers without other financial resources, and focus solely on the value of the auto being pledged, not the consumer's ability to repay the loan over time. The new Military Lending Act caps any short-term auto title loan at 36 percent for any serviceman or servicewoman.
"We're talking about people who are having extreme problems in their lives and need something to tide them over," said Sen. Rick Jones, a Republican representing Allegan, Barry, and Eaton counties who opposes the bill. "But these are loan shark rates."
Jones is vice-chairman of the Senate's Regulatory Reform committee, which received the bill two days after the November elections from Richardville.
But before the committee could vote on the bill, Richardville had it directly discharged to the Senate floor. It's now one of 160 bills awaiting a vote on Tuesday's Senate general orders calendar.
Calls from The News to Richardville and Walsh weren't returned Monday.
According to two groups against the measure, the bill is aimed at helping out-of-state title lenders masquerade as pawnbrokers and open shop in Michigan, one of 29 states that don't allow auto-title lending.
The primary backer, according to two opposing lobbyists, is Georgia-based Select Management Resources, owned by Roderick Aycox. According to Reuters, as of 2012 Aycox and his close associates had made nearly $1 million in campaign contributions to lawmakers in several states to promote his business interests, but didn't specifically cite contributions to Michigan campaigns.
"I don't know of anyone who is in favor of this except the car title lenders," said Jessica AcMoody, a policy specialist with the Community Economic Development Association of Michigan. "This is sneaking in under the radar during lame duck."
A call to Roderick at Select Management wasn't returned Tuesday; neither was a call to the lobbyist said to be representing the bill, Governmental Consultant Services Inc. of Lansing.
AcMoody and others spent Monday at the state capitol circulating a letter from 50 groups opposing the measure, including Focus: HOPE, the Michigan State Bar Consumer Law Council, the Grandmont Rosedale Development Corp. and New Hope Baptist Church.
Also lined up against the bill — No. 1138 in the Senate and No. 5954 in the House — is the state pawnshop industry.
"It's not something that we want, and it didn't come from us," said Mark Aubrey of Warren-based Motor City Pawnbrokers and president of the Michigan Pawnbrokers Association.
Pawnbrokers are quick to point out that at 3 percent a month, Michigan's interest rate for pawn is the lowest in the nation, meaning that 80 percent to 90 percent of customers who pawn rings, guitars or tools redeem their loans. But higher interest rates — even if they only apply to loans against cars — will only bring a higher rate of default, said Seth Gold, vice president of American Jewelry and Loan in Detroit.
"It perpetuates a cycle of debt," Gold said.
"This could change the entire landscape of the pawn industry in Michigan and could affect consumers in an adverse way."
The biggest concern auto-lending foes cite is the potential that desperate borrowers could go from having few options, to losing their cars and having none.
"A lot of the auto title lenders don't do background checks to make sure people are employed and can pay back the loans," said AcMoody.
"If people default on this, they lose the car. How do you work? How do you get your kids to school? In this state, if you don't have a car, you're in trouble."