Lansing — A coalition of Michigan groups has taken the first step toward launching a petition campaign to drastically reduce 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 wording to the State Department. The group hopes to use the state initiative process to collect 340,047 signatures and submit its proposal to 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 are working to protect consumers and end 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 subject of debate in Lansing for years. In 2020, the Michigan House approved a bill that would have more than quadrupled the amount of money that short-term lenders could lend at some point. But the legislation has stalled in the state Senate.
Under the Michiganders for Fair Lending proposal, service fees charged by lenders would be capped at an annual percentage rate of 36%. According to the group, some Michigan lenders are currently charging fees that amount to 370% APR.
Under current Michigan law, lenders can lend up to $600 to a customer in an individual transaction, and the maximum loan term is 31 days. Service charges 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 wording of the proposed petition, the fee would be capped at around $1.38, a significant decrease in the amount of money businesses could make from transactions.
Proponents of payday loan restrictions have argued that short-term loans trap people in a cycle of debt. A 2018 report by the Center for Responsible Lending cited federal data that 70% of payday loans are taken the same day a previous loan is repaid in Michigan.
“People can find a lot of things they can be divided on lately, but that’s just not one of those issues. Michigan overwhelmingly agrees that a 370 APR % is just too high,” said Jessica AcMoody, policy director for the Community Economic Development Association of Michigan. “These short-term loans regularly create long-term debt and a cascade of consequences, including multiple overdraft fees, closed bank accounts and bankruptcy. People end up being worse off than when they took out the loan. .”
But opponents of the restrictions have argued that the small loans benefit customers who find themselves in financial emergencies. They argued that the limitations imposed on the sector are pushing more lending into totally unregulated – and potentially more troubling – markets.
APR is not an appropriate way to visualize the cost of a small loan, said Andrew Duke, executive director of the Alliance of Online Lenders, according to a report earlier this year from NerdWallet.
“The number ends up looking much 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 already have caps in place of around 36% APR, according to Michiganders for Fair Lending.
Typically, payday loan storefronts are not found in states with 36% caps, according to a 2012 report by the Pew Charitable Trusts.
Nebraska voters approved a 36% cap in November 2020. The measure was reduced from 83% to 17%. The initiative was funded by the liberal nonprofit Sixteen Thirty Fund and the American Civil Liberties Union, according to Ballotpedia.