Michigan lawmakers want 36% cap on payday loan interest rates
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Payday lenders say they could be forced out of Michigan if new legislation to cap interest rates at 36% becomes law.
Why it matters: Customers at payday loan stores in predominantly Black and low-income areas can get trapped in a cycle of never-ending debt, bill supporters say.
- A huge market exists for small-dollar loan stores among people with bad credit and those struggling to afford rent, groceries and utilities.
Driving the news: Democrats in the Michigan Senate approved the 36% cap on payday lending interest rates last week, with the support of four Republicans. The bill still needs House approval before it could be sent to Gov. Gretchen Whitmer's desk.
Catch up quick: During Senate floor speeches last Thursday, Sen. Sarah Anthony (D-Lansing) pushed for a stricter cap, arguing the 36% was still too high, while Republicans offered to work with the payday lending industry to ensure their survival in Michigan.
State of play: Payday lenders in Michigan charge service fees and interest rates based on the amount borrowed and the short repayment period.
- Under current laws, a borrower loaned $100 for two weeks would be paying $115, coming out to a 391% APR, the attorney general's office says.
Context: Michigan ranks in the top 10 for loans taken out on the same day a previous loan was repaid, according to data cited from the Consumer Financial Protection Bureau during committee testimony.
- In Michigan, 70% of customers take out another loan when they pay off a loan.
- It's estimated that 12 million Americans use payday loans each year, according to the Consumer Financial Protection Bureau.
The other side: A 36% cap would slash payday lenders' revenue by 90%, John Rabenold, chair of the Regulated Lenders Association of Michigan, told lawmakers at a Senate committee hearing this month.
- "The end result would be we would be unable to offer product as a for-profit business," he said.
The intrigue: People with poor credit will resort to loan sharks and other unregulated markets if payday stores are forced to leave, Rabenold warned. He delivered the testimony representing Check 'n Go, which has several stores across Metro Detroit.
The bottom line: With a split 54-54 chamber, House Democrats will need Republican support to send the bills to the governor, at least until special elections are held next month.