Michigan coalition plans petition campaign to slash payday loan rates
Lansing — A coalition of groups in Michigan has taken the first step toward launching a petition campaign to drastically cut the rates that payday lenders can charge customers for short-term loans.
Last Wednesday, a ballot proposal committee called Michiganders for Fair Lending submitted its petition language to the Department of State. The group hopes to use the state's initiative process to gather 340,047 signatures and put its proposal before voters in November 2022.
"We are a coalition dedicated to fair lending for Michigan," said Pastor Dallas Lenear of Journey Church of Grand Rapids. "Together, we’re working to protect consumers and put an end to predatory payday lending practices.
"Proverbs 22:22 says 'Do not exploit the poor because they are poor. …' Yet, that is precisely what predatory payday lenders do here in Michigan."
The practices of payday lenders have been a topic of debate in Lansing for years. In 2020, the Michigan House approved a bill would have more than quadrupled the amount of money that short-term lenders could loan out at a given time. But the legislation stalled in the state Senate.
Under the Michiganders for Fair Lending proposal, the service fees that lenders charge would be capped at an annual percentage rate of 36%. According to the group, some lenders in Michigan currently charge fees that amount to 370% APR.
Under current Michigan law, lenders can loan up to $600 to a customer in an individual transaction, and the maximum length of the loan is 31 days. Service fees are capped at 15% of the first $100, 14% of the second $100, 13% of the third $100, 12% of the fourth $100, 11% of the fifth $100 and 11% of the sixth 100.
Someone who borrows $100 for 14 days and is charged a $15 fee would face an APR of 391%. Under the proposed petition language, the fee would be limited to about $1.38, a significant decrease in the amount of money businesses could make off the transactions.
Supporters of restrictions on payday lending have argued the short-term loans trap people in a cycle of debt. A 2018 report from the Center for Responsible Lending cited federal data that found 70% of payday loans are taken out on the same day that a previous loan is repaid in Michigan.
"People can find a lot to be divided on lately, but this simply isn’t one of those issues—Michiganders overwhelmingly agree that 370% APR is just too high,” said Jessica AcMoody, policy director for the Community Economic Development Association of Michigan. "These short-term loans routinely create long-term debt and a cascade of consequences including multiple overdraft fees, closed bank accounts and bankruptcy. People end up worse off than when they took the loan."
But opponents of the restrictions have contended the small loans benefit customers who find themselves in financial emergencies. They have argued that limitations on the industry push more lending into completely unregulated — and potentially more troubling — markets.
APR isn’t an appropriate way to view the cost of a small loan, said Andrew Duke, executive director of the Online Lenders Alliance, according to a report earlier this year from NerdWallet.
“The number ends up looking a lot higher and more dramatic than what the consumer perceives to be the cost of the loan,” Duke said.
Seventeen states plus the District of Columbia have already implemented caps of about 36% APR, according to Michiganders for Fair Lending.
Generally, payday loan storefronts are not found in states with 36% caps, according to a 2012 report from the Pew Charitable Trusts.
Voters in Nebraska approved a 36% cap in November 2020. The measure passed 83% to 17%. The initiative was funded by liberal leaning nonprofit the Sixteen Thirty Fund and the American Civil Liberties Union, according to Ballotpedia.