The scheme to balance payday loans would include 'predatory' interest rates

The scheme to balance payday loans would include 'predatory' interest rates ...

LANSING, MI A ballot committee is planning to place a question on the November ballot that would stop payday lenders from charging "predatory" interest rates if approved by voters.

The Michiganders for Fair Lending initiative launched its Wednesday campaign to curb high payday loan interest rates. The group believes it will transform the current payday loan landscape into one that allows the borrower access to small loans, rather than one that creates a debt trap.

Payday lenders target Michigan's most vulnerable communities by offering rapid financing that traps people into an endless cycle of debt with outrageous interest rates, said Michiganders for Fair Lending Spokesperson Josh Hovey.

We're bringing this issue directly to voters this November, states legislators, who have been accused of putting a stop to predatory lending practices.

The typical payday loan in Michigan is equivalent to a 370% annual percentage rate (APR) (Michiganders for Fair Lending's proposal would cap payday loans at no greater than 36% APR).

According to a research from the Consumer Financial Protection Bureau, payday lenders in Michigan repay over 70% of their loans in the same day they paid off a previous loan. This same study found that the average payday loan borrower ends up paying out ten loans over the course of a year.

Dana Nessel of Michigan describes a short-term, high-cost transaction in which customers borrow money for a service fee. This type of loan is called a "deferred presentment service transaction" because the customer's check is held for a period of time before it's cashed. Not like car payments, as lenders aren't able to make installment payments.

Payday loans have a high service fee and a long repayment period. For example, a customer who borrows $100 for two weeks and receives $15 will pay a service fee equal to a triple-digit APR. The actual cost of the two-week loan is $15, which equals a 391 percent APR. And that's still not included additional fees for "eligibility checks."

Customers who fail to repay the loan can take out a second payday loan to pay off the first. Service charges may result in the customer becoming stuck in a cycle of debt.

In a consumer alert, Nessel said, "It's a slippery slope."

Payday loan stores are undoubtedly predatory, according to Fair lending advocates. Stores employ manipulative techniques and enter customers into a process that creates a cycle of debt that traps people into poverty.

"Stopping predatory lending is an issue in Michigan that resonates across parties, geographic regions, age, and income levels. Even in the divisive climate of today, this is one issue that the vast majority of individuals can agree on," said the policy director of the Community Economic Development Association of Michigan.

"Lenders know they get their money because they get direct access to a borrower's bank account and are able to recoup their own income before the borrower may pay rent, utilities, or food, according to AcMoody. Without funds remaining for basic life expenses, guess what happens?

Gabriella Barthlow, a financial coach for the Macomb County Veterans Service, said she's seen the predatory payday lending process play out with veterans she works with. Military veterans are particularly vulnerable to predatory lending, Barthlow said.

"At a targeted community for predatory lending, it's critical that veterans understand the dangers associated with payday loans, as well as the importance of a 36 percent interest rate cap," Barthlow said.

Many states have used the 36% APR cap, similar to the national Military Lending Act, which established consumer credit protections for active military members. In 2006, the military found that payday lenders established stores near military bases.

After hearing firsthand stories about excessive interest rates that hampered people in financial turmoil, Dallas Lenear of Project Green, a financial education organization established in Grand Rapids, said he was motivated to help with reforming the laws.

Payday lenders are exploiting our most vulnerable communities and neighbors without consumer protections, said Dallas Lenear of Project Green in Grand Rapids. People go to payday lenders because they feel like they have no other choice. They get stuck in a quicksand that keeps them for months and years..

Payday lenders are disproportionately located their stores in rural areas. Statewide, there are 5.6 payday loan stores per 100,000 people. This number is 25% higher in majority-Black communities, according to Lenear.

Michigan would join 18 other states and Washington, D.C., who have set a payday loan rate limit at 36% APR or less. Voters in Nebraska, Colorado, South Dakota, and Montana have adopted payday loan rate caps by ballot measure that all garnered more than 70% voter approval.

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