Detroit Discusses the Impact of Michigan Payday Loans
By Lindsay Frankel
In an effort to improve financial literacy skills for Detroit residents, the Community Development Advocates of Detroit hosted a community forum in August to discuss the financial impact of Michigan payday loans. The goal was to bring to light analysis of how Michigan residents have been affected by these harmful products so that participants will seek other options during financial emergencies. The event took place at the Central Detroit Christian Community Development Corporation.
A payday loan is a short-term loan intended to be repaid out of a borrower’s subsequent paycheck.
Ruth Johnson, public policy director at Community Development Advocates of Detroit, said that payday loans have become a costly problem in Michigan. “These loans have drained more than half a billion dollars over the last five years from our state. In 2016, these loans cost Michigan citizens more than ninety-four million dollars,” she said. “And what’s really tragic is that payday lenders target the most vulnerable at a very desperate time. They keep cycling and cycling through renewing or getting new payday loans to pay off the previous loans.”
State representative Sherry Gay-Dagnogo added that payday lenders target low-income minority communities. A 2018 study from the Center for Responsible Lending found that payday loan storefronts are disproportionately concentrated in areas with a high percentage of African American and Latino residents.
Gay-Dagnogo said there is a need for credit in these communities, where people are living paycheck to paycheck, but payday loans aren’t the right choice to meet that need. Instead of bridging gaps in income, using payday loans “exacerbates these gaps and continues to place more burden on the consumers as they continue to work,” she said. “Then the pay doesn’t add up to what they need it to be to address their finances. They’ll find that they still end up in this same cycle of poverty.”
Through community outreach and education, along with regulation, advocates hope to curb the abuses brought by payday lenders in Michigan.