LANSING, Mich. (Michigan News Source) – New legislation introduced ahead of the legislative recess would place an interest ceiling on those opting for payday loans.  

A Deferred Presentment Service Transaction, often called a payday loan, occurs when a customer borrows money for a service fee according to the Department of Insurance and Financial Services (DIFS). 

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“The borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing,” according to DIFS. “The company gives the borrower the amount of the check less the fee, and holds the customer’s check for a period of time (typically the next payday) before presentment to the customer’s bank, hence the name deferred presentment.” 

Under Senate Bill 632, sponsored by State Senator Sarah Anthony (D-Lansing), there would be a cap on the interest rate for payday loans at 36 percent annual percentage rate (APR). 

Currently, Michigan law permits two payday loans to be open concurrently, but not more than one loan with the same payday lender. 

“The maximum payday loan you can receive is $600.00,” according to DIFS. “The service fee cannot exceed the aggregate of: 15% for the first $100.00, 14% for the second $100.00, 13% for the third $100.00, 12% for the fourth $100.00, 11% for the fifth $100.00, and 11% for the sixth $100.00.”

More than a dozen other states already have identical rates according to lead sponsor, State Sen. Anthony. 

“The payday lending industry targets low-income, rural, and other marginalized communities, trapping countless Michiganders in cycles of debt that usually end in bankruptcy,” said Anthony. “It is far past time to reign in this industry by bringing our rate caps in line with 20 other states across the country and instead look to promote viable alternatives to payday loans.” 

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Other advocates such as the Black Leadership Advisory Council (BLAC) have come forward voicing its support. 

“This issue is especially important to African Americans because payday lending operations are concentrated in communities of color,” according to BLAC. “While there are 5.6 payday stores per 100,000 people in Michigan, communities with a significant African American population have 7.6 payday lenders per 100,000 people.

The average payday lender customer takes out 10 loans per year, and uses new loans to pay off old ones, according to the Consumer Financial Protection Bureau (CFPB). 

 CFPB data shows 70% of payday loans in Michigan are taken out on the day a previous loan is paid back and 86% of payday loans in Michigan are taken out within two weeks of a previous loan’s payoff.