At a time of great struggle for families in Michigan, we have the opportunity to take simple yet powerful action that is grassroots and positive. Currently, predatory payday lenders in our state are charging triple-digit interest rates that exceed 370% APR. A proposed measure to secure a place on the November ballot would ensure they cannot charge more than 36% a year.
Payday loans work like this: A cash-strapped person takes out a loan of a few hundred dollars that usually has to be paid off on their next payday. The payday loan industry markets these loans as a “quick fix,” but the reality is that they operate as a long-term debt trap.
This is because payday loan terms are designed to create a long-term cycle, requiring full payment plus fees and requiring direct access to the borrower’s bank account to collect it. Regularly, the borrower finds himself unable to meet these conditions and finds himself stuck in a downward spiral of recurring debt that lasts for months or even years. The Consumer Financial Protection Bureau found that the average payday loan borrower takes out 10 loans per year; and in Michigan, 70% of payday loans are taken out the same day the previous loan was paid off.
What is touted as a “quick fix” is actually a debt trap by design. Payday lenders depend on this trap to power their stripping machine.
The damage caused by this practice is significant. Every high-interest dollar that goes to a payday lender is one less dollar that stays in our community. Payday loan users find themselves falling behind on utilities and other bills. They cannot shop at local businesses or buy birthday presents for their children. Often their credit is ruined and some even lose their bank accounts due to multiple insufficient funds charges.
As the executive director of a local financial empowerment organization (GREEN project) and a pastor, these painful stories are seen far too often.
Proverbs 22:22 says, “Do not exploit the poor because they are poor…” Yet that is precisely what predatory payday lenders do here in Michigan. Charging rates like 370% APR is pure exploitation of those who can least afford to pay such inhuman fees.
This is why various interest groups are uniting in support of an election measure that cuts interest rates to more than 36%. Our coalition includes groups concerned with helping working families maintain their ability to fully participate in Michigan’s economy, including consumer advocates, nonprofits, credit unions, and our faith communities.
Rate caps have been passed successfully in 18 states plus Washington, DC, with several passed by vote. Just recently, voters in Nebraska passed a similar measure with over 80% support, while voters in South Dakota and Colorado passed their payday loan reform initiatives with over 70% support. People in Michigan should join the growing number of states that have put a quick end to this exploitation by passing this rate cap on predatory payday loans.
Unfortunately, our state legislature refuses to act on this important issue, even with a strong majority of Michiganders from all parties supporting this common sense policy. We had no choice but to put this question directly to Michigan voters.
You can help ensure the citizens of Michigan have the opportunity to raise their collective voice to make a meaningful difference in the impact of these loans on people in our community by signing a petition this spring.
Dallas Lenear is the executive director of Project GREEN in Grand Rapids.