Monique Stanton: Payday lending practices have left many Michiganders drowning in debt

The exorbitantly high interest rates and short repayment periods that come along with payday loans here in Michigan have left many Michiganders drowning in debt. These are people looking for a life raft when unexpected expenses arise, but far too often they find themselves worse off, struggling to keep their heads above water.

The Michigan League for Public Policy has a long history of calling for the reform of payday lending practices that prey upon people who are already financially vulnerable, which is why we as an organization support a bill that was recently passed with bipartisan support by the Michigan Senate and is currently under consideration by the Michigan House. 

Michigan Senate approves cap on payday loan interest rates

Senate Bill 632 would cap annual interest rates for payday loans at 36%, bringing it in line with protections that were extended to our military service members back in 2006 through the Military Lending Act. The bill would also bring Michigan up to speed with the 20 other states that have either already passed laws to cap payday lending rates around 36% or have put measures in place that ensure lenders can’t saddle consumers with interest rates and financing terms that lead to long-term debt traps.

Interest rates for payday loans in Michigan currently average an astounding 370%, which far surpasses the average annual percentage rates (APR) for many other means of borrowing. For example, in the fourth quarter of 2023, credit cards carried an average APR of 21.47%, and the average APR for a car loan is 24.17% for a person within the lowest credit score range. This most certainly substantiates why it should not be acceptable for short-term payday loans to carry a 370% interest rate. 

On top of the high interest rates, the two-week repayment period for loans is often an impossible deadline for individuals with low incomes, frequently leading to a vicious cycle where a borrower will take out a second payday loan to cover their expenses after repaying their initial loan. In fact, according to the Community Economic Development Association of Michigan, payday borrowers in Michigan take out an average of 10 loans per year and 70% reborrow the same day they pay off their previous loan. This cycle of continuous borrowing only puts off the problem until later down the line and often sinks individuals further into debt. 

Further pointing to the predatory nature of payday lending is the fact that 77% of payday lending advertisements target communities of color and payday loan storefronts are disproportionately located in rural and low-income areas as well as Black and Latino communities. These are communities that have been historically denied credit, have faced increased barriers to prosperity and are now at greater risk of these predatory lending practices.

Senate Bill 632 comes at a time when Michigan families are seeing the cost of living skyrocket and are looking for any kind of relief. We are grateful to Sen. Sarah Anthony (D-Lansing) for sponsoring this bill, as it would put commonsense consumer protections into place for Michiganders who are already struggling.