(Source: MIRS.news, Published 03/14/2024) Payday loan operators in Michigan could not charge customers more than a 36 percent annual interest rate under legislation the Senate approved Thursday, 24-13.
The legislation, similar to a ballot initiative attempted in 2022, is being pushed to prevent low-income, marginalized communities from being driven into a cycle of debt, while being opposed by an industry that claims the restriction would drive them from the state, preventing people from accessing the service at all.
"These are the kind of bills that drove me to run for public office," said Senate Appropriations Chair Sarah Anthony (D-Lansing), the sponsor of SB 632. “Whether we're talking about folks who live in rural Michigan, in our inner cities . . . they are disproportionately impacted by predatory loans.”
According to an August 2018 report gathered by the Center for Responsible Lending – a North Carolina advocacy group, homing in on "financial fairness" – annual percentage rates (APRs) charged on payday loans have exceeded 340 percent. The organization wrote that the APR charges cost consumers in Michigan more than $513 million over a five-year period prior to its report.
Meanwhile, the publication spotlighted that more than two-thirds of payday stores in Michigan were linked to out-of-state headquarters.
The 340 percent number comes from the sequence of payday loans routinely being taken out. For example, data from the federal Consumer Financial Protection Bureau (CFPB), which was relayed in the center's report, has indicated that 70 percent of payday loans in Michigan specifically "are taken out on the same day as a previous loan is repaid."
During the vote on Anthony's SB 632, Sens. Thomas Albert (R-Lowell), John Damoose (R-Harbor Springs), Mark Huizenga (R-Walker) and Ed McBroom (R-Waucedah Twp.) joined Democrats in supporting the legislation. Sen. Jim Runestad (R-White Lake) did not vote on the bill, although he was in attendance during today's Senate session.
Sen. Lana Theis (R-Brighton) attempted to amend the legislation, offering a proposal that would repeal the 36 percent APR cap if 5,000 or fewer payday loan transactions take place in Michigan within six months following the bill's enactment.
"The thought behind this is that the number would definitely prove that these products, the short-term loans, are no longer being regulated. The need for those (doesn't) go away. People will find a different solution," Theis said before her amendment failed. "This proves these people went to an unregulated market, one that's even worse than what the payday lending market currently is."
She said the current financial situation in the country, whether it involves car repairs or any other urgent needs, is not getting less expensive.
Lobbyist John Rabenold of Check 'n Go – a storefront and online payday loan provider with nearly 1,000 locations in the United States – informed the Senate Finance, Insurance and Consumer Protection Committee on March 6 that the cap would result in a 90 percent reduction in revenue for the business he represents (See "36% Service Fee Cap On Payday Loans Moves," 3/6/2024), (See "Anthony Leading This Year's Attempt To Cap Payday Loans," 2/28/2024).
Essentially, he said SB 632's end result would be "we would be unable to offer product . . . as a for-profit business," explaining that similar legislation being enacted in other states has driven lenders out. In particular, he explained Check 'n Go closed shops – and eliminated the jobs associated with their small business contracts – in Illinois and New Mexico.
One October 2019 report affiliated with the Federal Reserve Bank of San Francisco noted payday loan stores were often located on the outskirts of military bases, until the U.S. Department of Defense fine-tuned its rules in 2015, further eliminating loopholes to ensure active duty military members and their dependents are not charged more than 36 percent APR on payday loans.
Then-CFPB Assistant Director Holly Petraeus of the Office of Servicemember Affairs said when she drove down a strip outside a military installation, she counted 20 "fast-cash lenders" located within less than four miles of each other, describing it as "not a convenience," but a problem.
When asked by MIRS if the bill's goal is to tell payday lenders to "peace out" in Michigan, as they reportedly did around military bases, Anthony said she didn't get into her business to shut down organizations and companies, but wants to ensure when any Michigander walks out the door, they're not seeing "predatory practices" and "blight."
"We've (now seen) 20 other states across the country (that) have reigned in these interest fees, and what we've seen is that, one: it opens up the market for more reasonable short-term lending solutions," Anthony said. "If the business model is predicated upon surviving off 370 percent interest, that's a huge problem. So I'm not concerned with…keeping industries open that prey on working families."
The Senate also unanimously approved HB 4343, requiring the state's Department of Insurance and Financial Services (DIFS) to submit a yearly report on payday loan transactions, licensees and complaints to the Senate and House committees focusing on banking and financial services.
The House bill was updated with a Senate substitute instructing DIFS to submit a report to legislators each year for the legislation's seven-year lifespan.
