Michigan group collecting signatures to cap interest and fees on short-term loans

A Michigan group began collecting signatures Wednesday for a ballot proposal to limit interest and fees charged by payday lenders they said are trapping low-income borrowers in cycles of debt.

Michiganders for Fair Lending needs roughly 340,000 valid voter signatures by June. If enough are gathered, the measure would go to the Legislature, where efforts to rein in payday loans have stalled. If lawmakers did not act, the public would vote on the initiative in November.

It would cap such loans, known as deferred presentment service transactions, at a 36% annual interest rate. They typically equal 370%, according to the group.

Payday loans are short-term, high-cost loans, generally for $500 or less, that usually are due on the borrower’s next payday.

Jessica AcMoody, policy director at the Community Economic Development Association of Michigan, said payday loan customers take out 10 loans per year on average and 70% reborrow the day they pay off a previous loan.

"This cycle causes significant financial harms for families caught in a debt trap — including difficulty paying for basic living expenses and medical needs (and) repeated overdraft fees, which often lead to closed bank accounts, taking the borrower out of the mainstream banking system altogether," she said. "By lowering the rate cap on this predatory loan, we can keep our most vulnerable neighbors out of a bottomless cycle of debt."

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Voters in at least four states — Nebraska, Montana, Colorado and South Dakota — have capped annual payday loan interest rates at 36% in recent years. Fourteen other states also have laws limiting short-term loan rates to 36% or lower.

The ballot committee had raised $25,000 as of Dec. 31. All of it came from the Sixteen Thirty Fund, a Washington, D.C.-based group backed by anonymous donors on the left. The fund, which also contributed $55,000 worth of in-kind research, has previously funneled millions of dollars toward Michigan ballot drives and could prove instrumental.

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An opposition group, Safe Lending Michigan, has been formed to counter the initiative.

Spokesperson Patrick Meyers called the proposal "extremely deceptive" and said it would effectively ban state-regulated payday loans.

"Michigan-based lenders with Michigan storefronts and Michigan employees will be put out of business," he said. "Like any proposal that sounds too good to be true, this one is and isn’t worth your signature."