Michigan ballot measure aims to cap payday loan rates
LANSING — A coalition of consumer and civil rights groups hoping to strengthen regulation of Michigan’s payday loan industry launched signature-raising efforts on Wednesday to bring the issue before voters in November.
Michiganders for Fair Lending, a Grand Rapids-based organization, is leading a ballot initiative that would cap the fees and maximum interest rate a payday lender can charge in Michigan at 36% per year. The measure would also allow the state attorney general to prosecute lenders who exceed that limit.
According to the Consumer Financial Protection Bureau, payday loans are often short-term loans with high interest rates that become due on the borrower’s next payday.
Michigan law allows a payday lender to charge fees and interest at a maximum of 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100 and 11% on the fifth and sixth $100.
This means that someone who borrows $100 can be charged up to $15 if they repay the loan within two weeks. In this case, the annual percentage rate – a metric measuring the annual cost of lending to a borrower – is 391%, nearly 10 times higher than Michiganders for Fair Lending’s proposed cap of 36%.
Coalition members say the ballot measure would limit predatory lending and help borrowers trapped in a cycle of debt due to high interest rates and a lack of government oversight over lending practices.
“While the industry sees its payday loans as a quick fix, these loans take away a person’s financial capacity and put them in a worse situation than when they started,” said Ted Fines, executive director of Habitat for Humanity in Michigan, on a Wednesday. press conference.
Legislation to cap interest rates on payday loans has stalled in the Michigan legislature for the past few years, said Jessica AcMoody, director of policy for coalition member organization Community Economic Development Association of Michigan, at Wednesday’s press conference.
Senate Finance Committee Chairman Jim Runestad, R-White Lake, whose committee would hear such legislation if it came to the Senate, said he believes the maximum interest rate should be lowered, but he does not don’t know by how much.
“It sure seems like someone paying nearly 400% a year is out of the picture,” Runestad said in Bridge Michigan on Wednesday. “I think it’s usurious to charge 400% per year. It’s like a loan shark.
Opponents of similar initiatives across the country have expressed concern that the measure will force legitimate lenders out of business and cut off the lifelines of borrowers in need of short-term cash.
“I fear capping interest on short-term credit will completely eliminate access to emergency funds for the most vulnerable Americans,” said Diego Zualaga, a political analyst at the CATO Institute, a libertarian think tank, during a congressional hearing in April 2019. “Imposing a cap on small loans today risks leaving vulnerable households at the mercy of unscrupulous family members or providers, or forcing them to go without basic necessities.”
In Michigan, payday loan stores are more likely to be concentrated in communities of color, where residents generally bring in less money than white Michiganders, according to a 2018 mapping analysis from the Center for Responsible Lending, an organization a North Carolina-based nonprofit that advocates shorting. term borrowers and coalition member defending the Michigan ballot measure.
In June 2017, there were 5.6 payday loan stores per 100,000 residents in Michigan, according to the analysis. But in census tracts where black and Latino residents make up more than half the population, there were 6.6 stores per 100,000.
Most payday loan borrowers tend to come back to borrow more. About 70% of Michigan borrowers take out another loan the same day they repay the last one, according to a 2016 report from the Center for Responsible Lending.
Some borrowers are emptying their bank accounts to meet loan repayments, leaving no savings to cover rent or food expenses and therefore have to take out another loan to make ends meet, AcMoody said.
“This cycle is causing significant financial damage to families trapped in debt, including difficulty paying basic living expenses and medical needs,” she said.
Why lower the ceiling to 36%? The number is taken from the Military Loans Act of 2006 which capped the annual interest rate on payday loans at 36% for active duty military personnel and their dependents, said Gabriella Barthlow, financial coach for the veterans and families of Macomb County, during Wednesday’s press. conference.
The military law was passed after the Department of Defense found that payday lenders “crammed around military bases were impacting readiness and reducing quality of life for military families,” Barthlow said. .
According to the Center for Responsible Lending, a total of 18 states and Washington, DC, have adopted a 36% cap on payday loan interest.
Responding to concerns that the cap could force payday lenders out of business, AcMoody said the coalition does not hope to shut down the lending industry, but rather curb predatory lending.
“Any lender who is willing to lend at 36% APR can continue lending,” she said.
The coalition includes:
- Black Impact Collab
- Civil Justice Center
- responsible credit center
- Community Economic Development Association of Michigan (CEDAM)
- habitat for humanity
- Caisse Populaire du Lac Trust
- Michigan League for Public Policy
- Grand Rapids NAACP
- GREEN project
- United Way of Michigan
Michiganders for Fair Lending’s voting committee has so far raised $25,056, according to campaign fundraising documents submitted in January. Of that amount, $25,000 came from the Sixteen Thirty Fund, a DC-based liberal black money group that is not required to disclose its donors.
Josh Hovey, spokesman for the Michigan coalition, said Wednesday that funds from the Sixteen Thirty Fund helped launch the campaign, and that the ballot initiative committee will follow the campaign finance law of the State “to the letter”.
The voting committee needs to collect 340,047 signatures to place the ballot proposal on the November ballot and will become law if a simple majority of voters approve.