HB 4251 Would Cap Rates on Triple-digit Interest Predatory Loans in Michigan

February 27, 2019

Contact: Jessica AcMoody, Senior Policy Specialist, CEDAM
                acmoody@cedamichigan.org | 517.485.3588

HB 4251 Would Cap Rates on Triple-digit Interest Predatory Loans in Michigan

Lawmakers should pass 36% rate cap to stop the payday lending debt trap

LANSING, MI – The Community Economic Development Association of Michigan (CEDAM) strongly supports HB 4251, which was introduced yesterday and would cap annual interest rates on payday loans at 36%, inclusive of fees.

Michigan was the last state to authorize payday lending, even while many other states have been putting protections in place to reform the practice. If the measure passes, Michigan would become the 17th state plus D.C. that stops the payday lending debt trap by enforcing an interest rate cap around 36%. Congress capped loans to active-duty military at 36% as well, after the Department of Defense reported that payday loans were affecting military readiness by causing service members’ families significant financial difficulties.

Payday loans are designed to trigger a high-cost cycle of repeat borrowing that typically sends borrowers into spiraling financial difficulties. The loans put customers further behind on their bills, often causing overdraft and bounced check fees, closed bank accounts and even bankruptcy. Payday lenders rely on this cycle that devastates their customers. The Consumer Financial Protection Bureau found the average borrower has 10 or more of these high-cost loans per year.

The average annual fees for payday loans in Michigan are equivalent to interest rates of 369%. Fees for the predatory loans transferred over $96 million in 2016 and in excess of $513 million over the past five years from struggling low-income Michigan families to payday lenders. Two thirds of Michigan payday loan stores are operated by companies with out-of-state headquarters.

Michigan lawmakers should protect our communities by enforcing an interest rate cap of 36% or less on these loans,” said CEDAM’s senior policy specialist, Jessica AcMoody. “Seventy percent of our state’s borrowers reborrow on the same day a previous loan is repaid. Michigan should join other states in common sense reform to protect consumers and help our resources stay in our communities.”

HB 4251, sponsored by Representative Bill Sowerby, has bipartisan support, as does payday lending reform across the nation. Five states have passed rate caps by ballot measure, most recently Colorado and South Dakota, both of which passed 36% rate caps by vote margins of more than 75%.