Thousands of Michiganders have become trapped in a cycle of debt after resorting to high interest, short-term loans to make ends meet, and advocates for the financially vulnerable say a new package of bills would make matters much worse.
The state Senate is considering three bills - SB 430, SB 431, and SB 432 - that would allow so-called payday lenders to increase the amount and duration of the loans they can offer to $2,500 for up to two years. Jessica AcMoody, senior policy specialist with the Community Economic Development Association of Michigan, said that amounts to triple-digit interest rates.
"So if someone takes out a $1,500 loan for 12 months, the fees on that loan would be $1,709," AcMoody said. "So the total amount that they would pay back would be $3,209. "
She added that on a two-year, $2,500 loan, payday lenders would collect more than $8,300. According to a recent study, 91 percent of people in Michigan who borrow from payday lenders re-borrow within 60 days.
Rather than expanding predatory lending products, AcMoody said, low-income communities need more access to financial education and alternative banking options such as credit unions.
87 organizations across the state, including churches, nonprofits, unions and municipalities have signed a letter opposing the expansion of these products. AcMoody said that's a testament to how far-reaching the impact of the debt cycle can be.
"It adds a lot of stress so it can affect your family situation, your relationship, your health. Other bills go unpaid," she said. "Oftentimes they end up just closing their bank account and so they're unbanked so they're paying more for other financial transactions that they need."
15 states and the District of Columbia have recently enacted legislation to crack down on predatory lenders, including capping interest rates at 36 percent or less.
