(Source: MIRS.news, Published 03/06/2024) Throughout one whole year, a short-term payday loan provider could not charge service fees of more than 36 percent of the loan as residents pay it back, under legislation approved Wednesday 5-1 in the Senate Finance, Insurance and Consumer Protection Committee.
Wednesday afternoon, the Senate panel moved SB 632 by Sen. Sarah Anthony (D-Lansing) out of committee. Sen. Mark Huizenga (R-Walker), the committee's minority vice chair, joined Democrats in backing the legislation, while Sen. Lana Theis (R-Brighton) opposed it and Sen. Kevin Daley (R-Lum) refrained from voting.
Currently, in Michigan, a payday loan cannot be worth more than $600, and residents are restricted from having more than two payday loans at any one time. Service fees for paying them back consist of 15 percent for the first $100, 14 percent for the second $100, 13 percent for the third $100, 12 percent for the fourth and 11 percent for both the fifth and sixth.
Capping annual interest rates for payday loans at 36 percent was among the policy recommendations made by the Governor's Black Leadership Advisory Council (BLAC) in 2022, which was assigned to make policy suggestions for preventing discrimination and racial inequality in the state.
The BLAC report included findings that a two-week loan from a payday lender could eventually cost consumers more than 300 percent of the original loan.
Moreover, it highlighted findings that although there are 5.6 payday stores per 100,000 Michiganders, communities with notable African American populations have 7.6 stores per 100,000 residents.
The legislation is being opposed by payday loan providers Advance America and Check 'n Go, which had representatives speak against SB 632 prior to the committee's vote.
Speakers included Cincinnati-area lobbyist John Rabenold of Check 'n Go, who said while critics claim payday lenders drain $67.4 million from the state, the amount actually refers to the gross revenue that's charged.
"That goes and pays wages, healthcare, occupancy expense, bad debt expense, capital expense…that all gets paid down," he said. "Even though it's disclosed as 370 percent, the $67.4 million in fees means your constituents leveraged over $500 million in credit for which they paid 13 percent. Using these estimates, it suggests that clearly over 500,000 transactions occur annually."
Rabenold said Check 'n Go is not threatening to leave the state if the 36 percent cap is enacted, but "the reality is if we were forced to operate at 36 percent, take a 90 percent reduction in revenue, the end result would be we would be unable to offer product…as a for-profit business."
Sen. Darrin Camilleri (D-Trenton) asked if, in other words, Rabenold's comments meant "you would be able to stop exploiting customers in communities of color and low-income areas."
Rabenold said Camilleri's statement was "interesting," adding that three-quarters of their employees come from the communities he mentioned, and when he looks at the options their customer base faces: "I feel like they're exploiting us for a good reason."
"They're borrowing money from us that costs less than a bounced check. It costs less than a disconnect from your public utilities. It costs less than your credit rating going down because you've defaulted, which makes future credit more expensive…our customers appreciate the service and when they have trouble, we work them out," Rabenold said.
Andrea Ruthenberg of Advance America said before she worked for the payday loan provider, she was a customer. She said her household had fallen on hard times, and one of her husband's paychecks wasn't enough to cover gas, and she was worried about her kids' school lunch check clearing the bank before her own paycheck hit.
A friend told her about payday loans when Ruthenberg asked to borrow $100.
"I remember being so embarrassed and afraid that I was going to be denied, that I went online to do my first loan," she said. "I got approved for $400, and I was amazed that loaning that $400 was only going to cost me $55. I was not only able to get gas, I was also able for that lunch check to clear…I was also able to get some groceries a couple of days early, so we weren't just scraping by on Ramen until payday. For my family, that $55 was well worth it."
On the other hand, the BLAC report spotlighted that, according to the Consumer Financial Protection Bureau, a government agency, the average payday lender consumer takes out 10 loans in a year, utilizing new loans to pay off the old ones. The data used in the report showed 70 percent of payday loans in Michigan are taken out on the same day a former loan is paid back.
SB 632 is being backed by groups like the Michigan Coalition against Homelessness, the Michigan Disability Rights Coalition, Habitat for Humanity of Michigan and the Office of Financial Empowerment City of Lansing.
Additionally, the Senate unanimously approved HB 4343, requiring the state's Department of Insurance and Financial Services (DIFS) to submit a yearly report from March 2024 through March 2030 on payday loan transactions, licensees and complaints to legislative committees dealing with banking and financial services.
