New Report Highlights Michigan’s Payday Lending Problem

Inside Subprime: Sept 18, 2018

By Ben Moore

Consumer advocate groups are calling for a change in the state of Michigan in regards to high-interest, short-term loan lenders. They are looking for state-mandated regulations to be placed on payday loan providers, a move which would implement protections for financially vulnerable borrowers. In the last five years, over half a billion dollars in fees have been taken from payday loan borrowers in the state of Michigan, according to a new report from the Center for Responsible Lending. With average payday loan annual percentage rates (APRs) in the state equalling approximately 340 percent, and 91 percent of borrowers re-borrowing within 60 days, many low-income customers are struggling to repay these high-interest loans on time. According to the Consumer Financial Protection Bureau, the average payday loan borrower takes out 10 loans in a 12-month timeframe, a pattern that is typical for payday loan borrowers as they find themselves trapped in a cycle of debt.

Right now over two thirds of payday loan stores in the state of Michigan are owned and operated by out-of-state lenders, which equates to millions of dollars leaving Michigan each year. The Center for Responsible Lending’s report also reveals that Michigan communities with high concentrations of people of color are being specifically targeted by payday lenders. Jessica AcMoody, Senior Policy Specialist with the Community Economic Development Associate of Michigan, sees payday loans as a “high-cost solution to a short-term problem” that are “built to take advantage of borrower’s financial vulnerability… [and are located] in communities where [payday lenders] can prey on financially vulnerable people.” AcMoody believes there needs to be more consumer education in order to warn borrowers about the financial risks of taking out a payday loan, as well as the need for policymakers in the state to consider implementing interest rate caps, which other states have been introducing as a way to provide more protection for financially vulnerable customers. Currently 15 states, as well as the District of Columbia, have implemented payday loan interest rate caps at 36 percent or less. Most recently, the state of Colorado introduced legislation that could place interest rate caps on payday loans which, if passed, would mean the state is the 16th to implement state-level regulations on payday lenders.

Currently, there is a package of bills in the Senate that has the potential to change the way payday loans are created in Michigan. The bills would “expand payday offerings and allow loans of up to $2,500 for up to two years with fees equivalent of up to 180 percent APR” which is a significant decrease from the current average of 340 percent. Under the new legislation, a $2,500 loan would still cost the consumer over $8,000 over the course of the loan terms, which highlights the high cost of using a payday loan as a source for quick cash. However, with such high fees in Michigan, these bills are necessary to protect the vulnerable borrowers and could provide relief for those struggling to repay their loans.

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