Predatory Lending in Michigan Amber Paxton City of Lansing Office of Financial Empowerment.

Predatory Lending in Michigan

Amber PaxtonCity of Lansing

Office of Financial Empowerment

Predatory Financial Practices: A National Issue

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• 12 million people get payday loans annually• $27 billion in annual loan volume• The typical two-week payday loan has an annual

percentage interest rate ranging from 391 to 521 percent. • The typical payday borrower remains in payday loan debt

for an average 212 days of the year after a two-week loan.• The “churning” of existing borrowers’ loans every two

weeks accounts for three-fourths of all payday loan volume.

• Source: Ctr for Responsible Lending


• Repeated payday loans result in $3.5 billion in fees each year and the average payday borrower has nine transactions per year.

• 90% of the payday lending business is generated by borrowers with five or more loans per year, and over 60% of business is generated by borrowers with 12 or more loans per year

• Some jurisdictions put caps on interest rates but by calling penalties for borrowing ‘fees’ rather than interest, some lenders are able to charge more than what the law is intending to allow.

• Source: Ctr for Responsible Lending

Predatory Financial Practices: A Local Problem


• 28 payday lenders in Lansing focused in 3 areas: MLK, S Cedar, Grand River• 36 in all of Ingham, Clinton and Eaton Counties• $76 fee (not interest) on $600 loan for 2 weeks = 329% effective annual

interest rate (26% interest cap on loans in MI)


• Why do people in our region get a payday loan?– “I can’t tell my son’s illness to wait seven days (for payday). I

have to buy the inhaler this week, the nebulizer the next week – that’s what I had to do.”

– Focus group:• Shut off notice from a utility• Medical issues• Domestic violence situation• Laid off / lost job• Special needs child care for a work trip• No conversations about money in my home as a childNote: 3 of the 7 participants had student loans in default

Summary of the Problem

• Payday lending is not a one-time solution to a temporary emergency situation – it begins a almost unavoidable cycle of debt at a predatory rate

The Issue: Blocking Legislation that Exacerbates the Problem

• There is a national trend of payday lenders working to pass legislation that creates new types of loans and/or increases the fees that can be charged and/or the length of the loan period.

• We feel that this trend is because payday lenders are nervous about the CFPB rules expected to come out this fall or next spring.


HB 5594 – Installment Loan Bill• Introduced by Representative Lyons in May (spearheaded by Access Financial)

– Originally was scheduled for committee hearing before summer break, but the hearing was postponed indefinitely

• Allows for an alternative, longer-termed loan for more money than is currently allowed under the Deferred Presentment Service Transaction Act

• The legislation would allow the lender to charge a monthly account service fee for each outstanding closed-ended loan in an amount up to 9.75% of the ORIGINAL principal amount of the loan– This is on top of a processing fee of 5% of the current principal that is already allowed

under the current law• The Center for Responsible Lending ran the numbers and said that for a 6 month,

$1000 loan, the APR would be 214.5%. The Michigan Credit Union League also came up with similar numbers (they said over 200%)

• We worked with the Michigan Credit Union League (MCUL) to kill the legislation. They managed to kill it before it got a hearing.


SB 1138 & HB 5954 – Auto Title Lending• Introduced by Senate Majority Leader Richardville and Rep.

Walsh• Would have amended the pawnbroker’s act to allow auto title

lending in Michigan at an annual APR of nearly 300%• The House bill didn’t get a hearing, but the Senate bill was

discharged to the floor by the Senate Majority Leader(without a hearing in committee) during lame duck

• The bill was never taken up on the floor. CEDAM worked with the pawnbrokers as well as a state-wide coalition of groups opposing – including faith-based organizations as well as municipalities and non-profits

MORE bad legislation is headed this way – “soon, in Michigan”


NCP Finance provides the capital to the

payday lender as a 3rd party lender at

26% interest

Borrower is not protected by the

Deferred Presentment Act

The payday lender has no cap on the fees they can pass on to

the borrower


• NCP filed an application, DIFS denied it.• NCP appealed that decision to the Court of

Claims. The AG represented DIFS in the Court of Claims.

• Both sides filed motions for summary disposition (meaning both sides argued to the judge that they should win without going to trial).

• Judge Servitto granted DIFS’s motion and denied NCP’s.


• NCP has since hired four multi-client lobbyists in Lansing.

• We do not know when legislation will drop, but expect it to happen soon.

What are the effects?RACIAL INEQUITY: A 2009 study of Payday Lending in CA by Center for Responsible Lending found that:• Payday lenders are nearly eight times as concentrated in neighborhoods with the

largest shares of African Americans and Latinos as compared to white neighborhoods, draining nearly $247 million in fees per year from these communities.

• Even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities. On average, controlling for a variety of relevant factors, the nearest payday lender is almost twice as close to the center of an African American or Latino neighborhood as a largely white neighborhood.

• Race and ethnicity play a far less prominent role in the location of mainstream financial institutions, such as bank branches. While race and ethnicity account for over half of the variation in payday lender location explained by neighborhood factors, they explain only one percent of the variation in bank branch locations. -

What are the effects?

CHILDREN & FAMILIES:– American Progress: Predatory lending, especially in the form of

payday loans, undermines economic security by forcing borrowers to sell necessary assets. More than 50 percent of loan recipients defaulted on their loans, placing existing bank accounts at risk. Borrowers also could have their debts sold to a collection agency or face court action.

– Center for Responsible Lending: “90% of the payday lending business is generated by borrowers with five or more loans per year, and over 60% of business is generated by borrowers with 12 or more loans per year.”

– Pew report: “Just 14 percent of borrowers say they can afford to repay an average payday loan out of their monthly budgets.”

– Our client Kathy - $260/mo for 2 years on a $600 loan.

What are the effects?

HEALTH:• The impetus for a FIRST payday loan is often a

medical expense• The costs of churning payday loans can keep

families from affording medical expenses (like the mom who couldn’t buy the inhaler and the nebulizer from the same paycheck and stick make her loan payment)

• Financial distress leads to physical distress – anxiety, depression

Payday Lending: The ASK

• FIRST & MOST IMPORTANT: Help us stop NCP Finance from bringing the CSO Model to Michigan

• Assist us in being VIGILANT against any more legislation that is proposed to “get in front of” the CFPB rules.

• Assist us in introducing and advocating for local ordinances that would serve as protections against the growth of payday lending in our communities

• FINAL THOUGHT: Only 36 states allow payday lending. Why is MI one?

Contact

• Amber Paxton, Director• City of Lansing Office of Financial

Empowerment • 517.483.4530• [email protected]

Predatory Lending in Michigan Amber Paxton City of Lansing Office of Financial Empowerment.

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