A corresponding pair of bills, one in the state Senate and one in the House, would regulate payday loans. The proposed bills would cap the annual percentage rate at 36%. They both have bipartisan support.
According to a report from the Center for Responsible Lending, a nonprofit group, the APR for payday loans averages as much as 400% in states without caps. The group says a 36% interest rate would be an effective cap.
Jessica AcMoody is the policy director of the Community Economic Development Association of Michigan, a nonprofit trade group. She said payday loans often leave borrowers in a bind.
“So what happens is we find that someone will take out a loan and won't be able to repay it in two weeks,” she said. “Then they get caught in this endless cycle of debt where they just keep taking out another loan to pay off the previous one.”
AcMoody supports caps on interest rates.
“So capping the interest rate on these loans would allow more responsible products out there,” she said. “People would actually be able to pay back the loans that they take out.”
The policy, AcMoody argued, will encourage more responsible lending.
“What normally happens when a state puts a cap on these payday loans is the payday loan companies decide not to operate under that system. So a lot of times they do close and leave the state,” AcMoody explained. "But what we've also seen is that really opens up the market for more responsible lending products.”
The Community Financial Services Association of America, a trade group representing payday lenders, didn't respond to a request for comment.
