(Source: MIRS.news, Published 02/28/2024) Grand Rapids resident Samika Douglas refers to herself as "a victim of the payday loan."
She acquired a short-term $500 loan after her family's car broke down, and she said things spiraled downwards when her household couldn't cover other bills after paying the loan off.
"Unfortunately for us, when we paid it back, we didn't have the money to pay the other bills that we needed to pay, so we had to go back to them again, and back to them again, and back to them again," Douglas told the Senate Finance, Insurance and Consumer Protection Committee this afternoon. "The fees alone was what took us under, because even though we paid the money back, we had all these extra fees that we had to pay on top."
Douglas was part of a family of four, consisting of her two children and her husband, who was receiving disability benefits.
She told the Senate panel that the payday lender she borrowed from gave her two weeks to make a payment, and although she was working full-time, her family entered a state of losing their home until they accessed shelter assistance from the State Emergency Relief Program (SER).
"It was not only embarrassing, it was hurtful to know that you can't afford to keep your housing because you . . . went to this place that tells you on commercials that they're a helping hand, when all along it's just a spiral down," she said.
Wednesday, the Senate Finance, Insurance and Consumer Protection Committee took testimony on SB 632, which would do away with the present-day state of service fees affiliated with paying off the aforementioned loans, replacing them with a 36 percent annual percentage rate cap for repayments throughout a year.
Currently, a payday loan transaction can be worth up to $600, and recipients are charged a service fee for payments – which simultaneously serves as an annual percentage rate – of up to 15 percent on the first $100. Additionally, they are charged up to 14 percent for the second $100, up to 13 percent for the third $100, up to 12 percent for the fourth and up to 11 percent for both the fifth and sixth.
Senate Appropriations Chair Sarah Anthony (D-Lansing), the sponsor of SB 632, said a combination of stories and real-life data has proven the short-term loans to be detrimental, especially due to the interest rates that can equate to an annual percentage rate of 370 percent.
"I've heard the stories. People have called my office crying, asking for just a little bit of assistance because they can never claw their way out," Anthony said, reciting an August 2018 report finding that there were 5.6 payday stores per 100,000 Michiganders, and in communities where Black residents make up more than 25 percent of the population, the number grows to 7.6 stores per 100,000 residents.
Anthony said that if one visits communities where payday stores are most visible, including rural communities where the 2018 report by the Center for Responsible Lending found there were 7.1 stores per 100,000 individuals, "you're gonna see a gas station, probably a McDonald's and a payday lender."
"You cannot convince me that they're not targeting our most marginal groups of people in Michigan," said Anthony, who's been working on the subject since she was an Ingham County commissioner beginning in 2013, and since she entered the Legislature as a representative in 2019.
However, during Wednesday's committee hearing, Vice President Julie Townsend of Government Affairs for Purpose Financial, a state-licensed consumer lender and the parent company of Advance America with 77 branch locations in Michigan, said the bill would eliminate the product altogether.
She said a 36 percent annual cap on two-week loans would allow for a fee of $1.38 per $100 loan, and they could not operate and offer loans if that were the fee.
"There (were) zero deferred presentment lenders in the state of Nebraska following a 36 percent rate cap," Townsend said, essentially making the case that 36 percent caps could possibly reduce access to non-bank and non-credit union lenders, limiting access to smaller-sized loans a household might need for an electric bill, utilities, or Wi-Fi payments.
She added that licensed and regulated lenders are widely available, unlike non-profit programs that she said are "largely subsidized." Moreover, she mentioned a case when a man with a credit score over 800 points applied to 15 different banks and credit unions for a loan, resulting in his score shrinking below 700 as he was either denied or not responded to.
Senate Finance, Insurance and Consumer Protection Chair Mary Cavanagh (D-Redford Twp.) said she needs to check in on how her committee members, stakeholders and people, in general, are feeling about the proposed 36 percent cap "before even thinking about bringing it back for a vote."
But the issue is personal for Cavanagh, as she found herself "caught in the system of payday loans, and having to take out another one to pay for another one." She was earning about $400 every two weeks, and "I was faced with the situation of 'I can't go to work unless I pay for gas,' and that was the only option that was quick . . . that I walked in and left with a loan."
"I just think that pushing along legislation with even getting the idea started, or even putting (on a) cap, opens up the opportunity for alternatives that won't put people in such a predatory space," she said.
