Michigan Senate approves cap on payday loan interest rates

Legislation to reform the state’s payday loan industry has passed the Michigan Senate.

After passing through the Michigan Senate Finance, Insurance and Consumer Protection Committee in February, Senate Bill 632, sponsored by state Sen. Sarah Anthony (D-Lansing), and House Bill 4343, sponsored by Rep. Jennifer Conlin (D-Ann Arbor), were both approved by the full Senate on Thursday.

Anthony’s bill limits to 36% the annual percentage rate (APR) that payday loan providers could charge customers instead of the current graduated rate that she previously testified can equate to 370%. 

Currently, the Deferred Presentment Service Transactions Act allows licensed payday loan providers to enter one payday loan transaction of up to $600 with a customer, with a service fee for each transaction. While the fees are capped, the interest rates are not, which Anthony said puts some borrowers in a debt bind that is hard to get out from under.

While each payday lender is limited to a single loan per customer, they must also enter each loan into a statewide database to ensure that individuals don’t exceed two loans at any one time from different lenders.

However, data from the Consumer Financial Protection Bureau (CFPB) indicates 70% of payday loans in Michigan are taken out on the day a previous loan is paid back while 86% of payday loans in Michigan are taken out within two weeks of a previous loan’s payoff.

On Thursday, Anthony said the issue was one she had been working on for many years, both as an Ingham County commissioner, as a state representative, and now in the Michigan Senate. 

“Growing up on the southside of Lansing, I remember seeing predatory lending facilities as well as liquor stores and fast food all around me, and it always bothered me that because I came from a marginalized community, that individuals and organizations and businesses tried to basically come into our community and prey on the most vulnerable among us,” said Anthony. “Michigan payday lenders disproportionately locate their stores in communities of color in rural areas. This means predatory lending has the biggest impact on family farmers, on working poor, and on again on low income individuals in every corner of our state.”

Some Republicans spoke against the bill, saying it addressed a need that otherwise would not be met.

“Killing the payday lending industry in the state will do nothing to help the thousands of Michiganders who turn to short-term loans to make ends meet,” said Senate Minority Leader Aric Nesbitt (R-Lawton). “If you think payday lender interest rates are high, wait until you hear what your local loan shark charges or how he goes about collecting when you’re late. While the Tony Sopranos of the world will say, this is good for their business. I say, this is bad for folks in need of these short-term loans.”

However, several Republicans crossed the aisle to approve the bill, which passed 24-13, with Sen. Jim Runestad (R-White Lake) not voting.

Speaking with reporters afterward, Anthony said she found the bipartisanship gratifying.

“I’m really shocked by how much bipartisan support these bills we’re able to garner today,” she said. “But I think that’s a testament that it’s not a partisan issue, that poverty is in literally every corner of our state. And both Republicans and Democrats can agree that something as simple as reducing the interest rate from 370% to 36% is a huge step for a lot of families in Michigan. So I’m just excited.”

As for the package’s future in the House, Anthony was cautiously optimistic.

“What I have learned is that I can never predict what’s happening in the House, and I wouldn’t be so bold as to ever try to do that,” she said. “But we’re seeing a trend. We’re seeing that people are hearing directly from their constituents, and the same constituents that are over here in the Senate are over in the House. And so I hope that more people who have been really impacted by predatory lending start to contact their members in the House and share their stories. Once you hear the stories, you are compelled to vote yes. So that’s what I’m hopeful for.”

Conlin’s bill, which would require the director of the Department of Insurance and Financial Services (DIFS) to submit, each year for seven years, a report to the Legislature on payday loans in Michigan, was passed unanimously.

Following passage by the Senate, the Michigan League for Public Policy (MLPP) issued a statement of support. 

“We commend Sen. Sarah Anthony for sponsoring this bill, which would go a long way in helping make loan repayment more manageable and limit the number of individuals and families who end up trapped in debt,” said MLPP President and CEO Monique Stanton. “This smart legislation would bring Michigan up to speed with the protections that were extended to our military service members more than 17 years ago through the Military Lending Act as well as the 20 other states that have already put commonsense payday lending consumer protections into place for their constituencies.”

Other groups that support legislation are the Community Economic Development Association of Michigan (CEDAM), Project GREEN (Grassroots Economic Empowerment Network), Michigan Poverty Law Program, the Center for Responsible Lending, and the Michigan Catholic Conference (MCC).