Payday lenders hungry for more
Last October, I wrote a column in The Alpena News on payday lending, the threat it poses to local residents, and the legislative efforts underway in Lansing to protect borrowers.
I noted that rural areas, in particular, are vulnerable to payday lending, and that Alpena County has one of the higher rates of payday lenders in the state, with 14 stores per 100,000 people, making the high-interest, high-risk loans even more accessible here than in most counties. I also pointed out that a report by the Center for Responsible Lending found that, from 2012 to 2016, payday lenders took more than $513 million in fees from consumers in Michigan, with fees and interest that can reach over 340% annual percentage rate (APR).
But I also shared some good news with readers, as House Bill 4251 had been introduced in the Michigan Legislature to require lenders to determine that a borrower has the ability to repay and that the borrower’s debt-to-income ratio is not greater than 41%. Banks and credit unions are required to determine that borrowers have the ability to repay their loan, but payday lenders have no such requirement. That bill also included a stipulation that borrowers can have no more than one active loan at once and must have a 30-day “cooling off” period between loans … but it failed to include the 36% interest rate cap that the original bill language included.
Fast-forward four months, and House Bill 4251 has seen no further action than the committee hearing I wrote about in October. And in fact, later that month, some legislators instead introduced a bad payday lending bill, House Bill 5097, that benefits the lenders and further harms consumers. That bill moved quickly, passing out of the House Regulatory Reform Committee the same day it was brought up for discussion. The legislation now has to be reviewed by the House Ways and Means Committee, which will happen today.
House Bill 5097 would allow payday lenders to make loans of up to $2,500, with fees of 11% monthly on the principal of the loan. At that rate, a one-year loan would carry an estimated APR of around 132% to 135%. On a $2,500, two-year loan, that means a borrower would pay back a whopping total of $7,187.08.
The bill would not only create another high-cost credit product, but it would allow payday lenders to directly access customers’ bank accounts through electronic means. In other states where electronic access to an account is allowed, there are many stories of payday lenders attempting to take funds multiple times in any given day (thus causing overdraft fees), and of banks closing those accounts because of repeated attempts to take money electronically.
In addition, there are already laws governing small loans in Michigan — the Michigan Regulatory Loan Act and the Credit Reform Act. Proposing House Bill 5097 under the Deferred Presentment Act is an attempt to allow the payday lending industry to gain an unfair advantage by getting around the consumer protections that other small loan providers are required to abide by in Michigan.
Simply put, this legislation is designed to boost an already predatory industry, essentially sharpening its teeth and claws to enable it to sink deeper into residents’ pocket books.
This bill has widespread opposition, including my organization, the Michigan League for Public Policy, the Community Economic Development Association of Michigan, the Michigan Catholic Conference and other faith leaders, Habitat for Humanity Michigan, and several financial institutions including Lake Trust Credit Union.
As an organization dedicated to helping workers and their families make ends meet, we know times are still hard for many Michiganders.
But payday lending is a money-hungry wolf in the sheep’s clothing of economic assistance, taking advantage of people’s financial needs to create a bigger pile of debt in the long run.
The League and our partners who are truly dedicated to the economic well-being and security will continue to support sound public policies to help people who are struggling. And we will continue to oppose legislation that does more harm than good, including House Bill 5097. We will oppose House Bill 5097 when it is taken up by the House Ways and Means Committee, and every step of the way beyond that. And we urge readers to contact your legislators and urge them to oppose this bad policy as well.
Peter Ruark is senior policy analyst at the Michigan League for Public Policy.