The Michigan Subprime Marketplace: Title and Payday Loans in Michigan
As any Michigander can tell you, the Mitten State has plenty to write home about. From its rich history as a leader in art, industry, and innovation (we’re looking at you, Motown, Ford and Edison) to the endless beauty and adventure of its lakeshores and Upper Peninsula, Michigan has a lot to offer.
Nevertheless, despite the pretty picture that is portrayed through the Pure Michigan ad campaign, between changes in job markets and population shifts across the state, there are many Michigan households struggling to make ends meet.
As of 2016, the median household income in Michigan was $50,803 – about 8% lower than the national median income of $55,322. Similarly, Michigan’s poverty rate of 15.0% at that same time was also higher than the national average of 12.7%.
For many families who are living from paycheck to paycheck, dipping into the subprime loan market for quick cash may feel like the only option to get by.
- Nickname: "The Great Lake State"
- Population: 9,909,600
- Website: Michigan.gov
Payday Loans in Michigan
Payday loans – also called cash advances, check advances, or “deferred presentment service transaction” – offer a way for someone who’s short on cash but needs money now to get cash quickly in exchange for high fees. Payday loans are typically for relatively small amounts, and they have to be paid back quickly. In Michigan, payday loans must be under $600, and they must be paid back within 31 days. Anyone with government-issued “personal identification, a checking account, and proof of anticipated income from a job or governmental benefits” can usually access a payday lender either online or in a storefront and take out an immediate loan of up to $600.
While this may seem like a great idea – who doesn’t run short on cash occasionally? – the service fees that payday lenders can charge are often way more than people who tend to find themselves in need of these services can afford. As the Michigan Attorney General’s office notes: “Very high service fees, combined with a short repayment period, may cause customers to fall into a payday loan debt trap. Instead of short-term financial relief, the customer experiences perpetual indebtedness.”
From this, it is clear that payday lending is often only truly in the best interest of the lender – not in the best interest of the person taking out the loan.
Consider this. There are 650 payday lenders in Michigan. As a point of comparison, there are nearly 20% more payday lenders than McDonald’s restaurants (545 in total) throughout the state. This ratio is far less than neighboring states Ohio (616 McDonald’s:1,374 payday lenders) and Wisconsin (285 McDonald’s:439 lenders), but it greatly exceeds the ratio in Indiana (326 McDonald’s:117 payday lenders).
On average, each of these payday lenders issues 3,541 loans annually, with an estimated average loan amount of $350. This leaves Michiganders paying an estimated $108,701,335 just in payday fees each year.
Michigan limits the fees that a payday lender can charge based on the amount of money a consumer takes out in payday loans. Payday lenders can charge 15% of the total loan for the first $100, 14% for the second $100, 13% for the third $100, 12% for the fourth $100, and 11% for the fifth and sixth $100. Here’s a breakdown of what that looks like:
|Payday Loan Amount||Maximum Fees Lender Can Charge(% of loan)||Maximum Fees Lender Can Charge ($)||Maximum Total Paid for Loan|
While a 15% service fee may not seem like a lot, it adds up – especially for the folks who take out frequent loans. What may sound like a low percentage for a short-term loan usually translates into an enormous annual percentage rate (APR) – or percent that you would pay back if that rate were applied over and over again over the same time period for a year.
Consider this: for a $100 loan that you pay back in 14 days, a payday lender can charge you 15%, or $15. If you took out that same loan with those same fees every 14 days for a year, you’d be paying 391% of the loan back to the lender over the course of that year. Keep in mind that at the end of that year, you would not have not gained any money from these transactions. Even if you paid the loan back on time each time you take it out, you’d still be out 391% of that $100 you keep borrowing – or $391 – when it’s all said and done.
|Loan Amount||Maximum APR for 7-Day Loan||Maximum APR for 14-Day Loan||Maximum APR for 31-Day Loan|
Michigan’s APR limits are set by its government, but some of its neighboring states have wildly different policies governing their payday lenders – and thus, too, governing their loan rates.
The History of Payday Loans in Michigan
Michigan’s 2005 Deferred Presentment Service Transaction Act (Act 244 of 2005) regulates all payday lending in the state. Among other requirements, this Act mandates that customers sign a written contract that includes itemized fees, their equivalent APRs, and payment expectations and timelines. This Act also requires that a specific itemized list of consumer rights appear on every payday loan agreement, and it specifies the language a lender must use in advising a consumer of how to file a complaint.
There has been very little movement in Michigan laws that govern payday lending, except that in 2017, Senate Bills 430, 431, and 432 were introduced to increase payday loan amounts to $2,500 (up from $600) and increase loan durations to a maximum of 48 months (up from 31 days) at APRs of as much as 180%. As of June 6, 2017, all three bills had been referred to the Senate Committee on Banking and Financial Institutions, but nothing had been brought to the floor for a vote. It is unclear what the future of those bills will hold.
Among other things, the Dodd-Frank Act authorized the Consumer Financial Protection Bureau, which is charged with regulating and providing tools that help consumers thrive. There have been no policy changes in Michigan since Dodd-Frank’s 2010 passage, which may indicate that Michigan’s lending-related policies already erred on the side of consumer protection.
Michigan Payday Loan Rules and Regulations
Michigan seems to be a moderately regulated state when it comes to predatory lending practices. Although high-interest payday loans are permissible, they are subject to many rules and regulations in order to protect everyday citizens from falling into dangerous debt traps. Although you may be tempted to take out a payday loan while struggling to make ends meet, remember that these loans can get very expensive very fast.
- Maximum Loan Amount:$600 per payday lender. Consumers can only have two outstanding payday loans at once.
- Loan Term:Up to 31 days
- Rollovers Permitted?:No
- Fees and Finance Charges:Up to 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.
- Finance Charge on a 14-Day, $100 Loan:$15 maximum
- APR on a 14-Day, $100 Loan:391%
- Maximum Number of Outstanding Loans at a Time:2
- Repayment Plan:Payday lenders are required to include in the written loan agreement signed by a customer: “If you are unable to pay your deferred presentment service transaction and have entered into eight deferred presentment service transactions with any licensee in any 12-month period, state law entitles you to request a repayment of that transaction in installments."
- Collection Fees:Returned check of up to $25
Title Loans in Michigan
In some states, a consumer who is having financial trouble may choose to take out another type of high-risk, short-term, high-interest loan. Title loans require borrowers to hand over the title to their cars as collateral for immediate access to cash. Like payday loans, title loans often have APRs in the triple digits and require full payback within a month; they also tend to increase borrowers’ debt in the long run, and, since they involve the risk of offering up your vehicle – and the right to repossess it – as collateral, many people lose their cars when they can’t repay title loans.
Thankfully, car title loans are essentially illegal in Michigan, where Michigan’s usury law prohibits auto title lenders from taking physical possession of someone else’s car or car title, and they limit auto title lenders to charging an APR of 7%.
However, some Michiganders may be tempted to venture into neighboring states like Ohio, where title lenders have found loopholes to offer what are effectively title loans under other lending names that are legal, and Wisconsin, where title loans are legal and can be offered for 50% the value of someone’s car up to $25,000.
While it may sound promising to take out a $3,000 loan in Wisconsin in exchange for offering the title for (and the right to repossess) your $6,000 car as collateral, consumers who pursue this course put themselves at serious risk because there are no maximum monthly fees or interest rates regulated by the state. That’s right – your title lender could charge you way more than you could ever reasonably be expected to pay back over the course of a month before pummeling you into a series of rollover loans that ultimately result in you losing your car and owing more money than you ever anticipated in the first place.
The History of Title Loans in Michigan
Lenders of any kind in Michigan are legally bound to abide by Michigan’s usury law. This law prohibits auto title lenders from physically possessing someone else’s car title. It also prohibits any unlicensed lender from charging more than 7% APR on any type of loan. If an auto title lending business wants to lend at an APR that exceeds 7%, they may apply for a license under other specific Michigan lending laws. Many title lenders pursue this route through, for example, the Pawnbrokers Act (also known as Public Act 273 of 1917), which still only permits lenders to charge a 36% APR plus $1 per month in usage fees, or the Regulatory Loan Act (Act 21 of 1939), which permits lenders to charge a maximum of 25% APR in interest in addition to a few other types of permitted fees.
Michigan’s lending laws err on the side of consumer protection by forbidding the kinds of interest rates that most car title lenders usually offer, but that doesn’t mean there haven’t been challenges to those laws in recent history
Back in 2014, identical bills were released in Michigan Senate and House that would have amended the Pawnbrokers Act to allow lenders to make title loans charge 20% usage fees per month. Many groups, including the Center for Responsible Lending and the Michigan Association of Pawnbrokers, opposed this legislation, which died in the Legislature shortly before the end of 2014., , No other legislation in favor of title lending or to further scrutinize similar lending practices has come up since.
Despite Michigan’s clear legal standards barring the predatory practices inherent in title lending, there have been multiple instances where title lenders have illegally made their way into the state. In 2016, after at least 5 years of abusive and predatory practices lodged against Michiganders, the State of Michigan sued and issued a cease-and-desist order for a title lender called Liquidation LLC. As reported by The Detroit News: “Liquidation LLC once operated out of Michigan under the name Sovereign Lending, incorporating in 2011 under Michigan’s Lac Vieu Desert Band of Lake Superior Chippewa Indians in the Upper Peninsula, hiding behind tribal immunity to charge annual interest rates of up to 390 percent. The tribe dissolved the company in 2014, when it transferred its assets to Car Loans LLC, headquartered in Rarotonga, a volcanic island that is part of the Cook Islands in the South Pacific where the principals behind a business can remain anonymous.”
The company seemed to have been targeting borrowers across several states, including New York, Pennsylvania, and Oregon. At the time of the lawsuit, over 60 Michigan citizens’ cars had been repossessed and retitled through title loans with this company, and an estimated further 334 people were thought to be currently making title payments.
Don’t be fooled by that quick Google search for “Michigan title loans” that leads you to believe they’re everywhere to be found. Most of the top hits are title lenders in other states hoping to lure in Michigan business across state borders, while others are other types of short-term, high-interest lenders seeking to snag more business by claiming to provide title loans only in their search criteria. Still others may be companies like Liquidation LLC, which are operating illegally out of the state of Michigan.
Michigan Title Loan Restrictions
Although you may believe that some laws – just like your curfew in high school – are overly restrictive, Michigan’s laws protecting its citizens from predatory title lending practices are in place for a reason. Don’t believe us? Just ask the 60+ people who lost their vehicles in the Liquidation LLC fiasco, or talk to the several hundred more who were swindled out of thousands of dollars.
Take Heather Sheldon, for example. She took out a $1,500 title loan from a Liquidation LLC affiliate called Autoloans. After agreeing to allow the company to place a GPS in her car to make repossessing it easier, and after paying $320 a month for 11 months (that’s $3,520 paid on a $1,500 loan in under a year, folks), Autoloans hit her with a $2,500 balloon payment. She had paid nearly $5,000 to this company in total before the Michigan Attorney General’s Office advised her to stop making the payments.
Regulating Payday and Title Loans in Michigan
When you’re in a financial bind, you may be tempted to take out a payday loan in Michigan, or head to Ohio to grab a title loan. But these loans are heavily regulated by Michigan for a reason: they’re dangerous, and taking one out could leave you worse off financially than you are now.
How to Report a Predatory Lender in Michigan
The process for filing complaints about predatory lenders varies depending on the type of complaint.
For payday lending complaints, the Michigan Attorney General’s Office advises consumers to notify lenders they believe to be in violation of the law in writing: “The payday lender must determine if it violated the law within three business days of receiving the complaint. If the payday lender determines that it did violate the law, it must return the check received from the customer and any service fees paid. The customer must still pay back the amount received. The payday lender, however, will be required to pay the customer an amount equal to five times the amount of the fee charged in the transaction, but not less than $15 or more than the face amount of the customer’s check.
If the payday lender does not believe it has violated the law, it must notify the Commissioner of the Department of Insurance and Financial Services (DIFS) and the customer of its conclusion. If the customer still believes that the payday lender has violated the law, the customer should file a complaint with DIFS… DIFS will investigate complaints promptly.”
Department of Insurance and Financial Services
- Address: P.O. Box 30020, Lansing, MI 48909
- Online complaint form: http://www.michigan.gov/documents/cis_ofis_fis_pub_1003_24966_7.pdf
If you’ve got a complaint about a title lender, those go to the Attorney General’s Office:
- Address: Consumer Protection Division, P.O. Box 30213, Lansing, MI 48909
- Phone: 517-373-1140
- Fax: 517-241-3771
- Toll free: 877-765-8388
- Online complaint form: https://secure.ag.state.mi.us/complaints/consumer.aspx
For complaints about a business offering payday loans:
Michigan Department of Insurance and Financial Services
- Address: P.O. Box 30020, Lansing, MI 48909
- Online Complaint Form: http://www.michigan.gov/documents/cis_ofis_fis_pub_1003_24966_7.pdf
Michigan does not currently have any lawsuits or legislation currently underway aimed at protecting consumers. However, in late 2017, the Consumer Financial Protection Bureau issued a series of rules limiting the reach of predatory payday lenders. While these rules are currently in limbo due to a recent shift in CFPB priorities, they are still set to go into effect in 2019.
Guides to Payday and Title Lending in Michigan Cities
Payday and title loans are a big issue for Michigan residents. And it gets even more complicated at the city level. Check out these payday and title loan guides to the following cities in Michigan:
Detroit | Grand Rapids| Lansing
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