Michigan Legislature Should Defeat High Cost Payday Lender Bill
Mich. Atty. Gen. Dana Nessel, guest writer
The harms of payday loans have been well documented, and the Michigan legislature is now poised to provide these lenders with another tool that could have damaging financial effects on already vulnerable communities in our state.
On May 27, the Michigan House of Representatives approved Bill 5097, authorizing a new “small”, long-term, high-cost loan product from “deferred submission service transaction providers,” better known as the name of payday lenders. The proposed legislation would allow payday lenders to extend loans of up to $ 2,500, with a monthly fee of 11% of the loan principal, which equates to an APR of about 132%.
This means that on a one-year loan of $ 2,500, a borrower would end up repaying more than $ 4,000. In short, HB 5097 would allow payday lenders to sell another high cost loan product with larger amounts and longer terms.
Payday loans are marketed as a quick and infrequent financial solution for unforeseen emergencies, but can easily become a long-term cycle of repeated loans and continued debt.
Data from the federal Consumer Financial Protection Bureau (CFPB) shows that 70% of Michigan borrowers take out a new payday loan the same day they are repaid, and 86% borrow again within two weeks.
Payday lenders collect more than $ 103 million in fees from Michigan residents each year. Michigan stores are disproportionately located in low-income communities and communities of color, making them especially damaging to our most vulnerable communities.
The bill further encourages a continuous cycle of indebtedness, by expressly allowing a consumer to use one of these “small” loans to pay off an existing payday loan and also by allowing borrowers to renew a loan after they have made a loan. only 30% of scheduled payments. As a result, borrowers could be caught in this debt trap indefinitely. In addition, the law allows lenders to directly access customers’ bank accounts through electronic means, which leads to a potential cascade of other negative financial consequences such as overdraft fees and defaulting on other expenses.
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Widespread opposition to HB 5097 has been voiced by a broad coalition of public, private, civic, religious, financial and other organizations familiar with the damaging effects of predatory lending on Michigan residents. A letter of May 26, 2020 to the bill’s sponsor, Representative Brandt Iden, in opposition to HB 5097, is signed by more than 90 of these organizations, with 57 cards recording the opposition presented to the Legislature.
Despite (or perhaps in recognition of) the extent of opposition to this new loan product, HB 5097 as approved by the House of Representatives includes a last minute credit, which rules out any subsequent citizen veto by referendum if it is promulgated.
While consumers should have the power to make their own choices, the Michigan legislature should not allow another high cost loan product with the same debt perpetuation characteristics as existing payday loans; in particular one improved by larger loan amounts and longer payment terms. Working Michigan families need access to safe and affordable options, not another expensive loan from payday lenders.
After passing the House with limited support, the bill is now before the Senate Regulatory Reform Committee awaiting a hearing. I encourage all members of the committee and the Senate as a whole to reject this proposal and put their constituents above the wishes of predatory lenders.
Dana Nessel is the Attorney General for the State of Michigan.