Michigan's Tough Rules on Payday Loans Must Stay in Place

Tough laws governing how many payday loans a customer can establish and upfront contracts defining interest rates make Michigan's payday loan rules some of the toughest in the nation. Dani Liblang, Birmingham attorney pledges to help consumers keep those laws in place.

Payday loans, sold at storefront offices in the meanest parts of town, charge up to 400 percent interest rates and trap people in a cycle of perpetual debt, according to Liblang Law. With a new acting director of the U.S. Consumer Financial Protection Bureau, Mick Mulvaney, some of these provisions could be removed nationally. Liblang agrees the existing rules are necessary.

"More than four out of five payday auto loans are re-borrowed within a month," warns Liblang who says this must stop because it is so egregious to society at large. "The cycle of taking on new debt to pay back old debt can turn a single, unaffordable loan into a long-term debt trap. Their paychecks could be garnished, they could be hounded by debt collectors or have their car or truck seized by a repo company in the middle of the night."

Liblang salutes Attorney General Bill Schutte whose office helped draft payday loan restrictions. Michigan consumers must sign a written agreement itemizing the fees they will pay when taking a loan from a corner loan office, usually located in a strip mall or near a party store.

The state has a deferred Presentment Service Transaction Act that requires the loan granter to describe payment obligations and the process a customer may take to file a complaint against the payday lender.

Michigan also maintains an electronic database that payday lenders must check to see if a customer has any outstanding transactions. To process a payday loan request, the lender must ask pertinent details. This avoids the dilemma of a borrower becoming head over heels in debt for a used car that isn't worth the paper it was loaned against.

Some people question whether Mick Mulvaney, the acting director of the U.S. Consumer Financial Protection Bureau will roll back federal safeguards the previous director put in place. These rules are similar to Michigan's stringent law in requiring upfront notification of loan costs and reducing the ability to take out more than one loan at a time.

Thus far in Washington, Mulvaney has frozen hiring and put a temporary hold on payments to victims of illegal banking practices. Three to 5 million American households turn to payday loan companies whose storefronts in the poorest neighborhoods outnumber McDonalds and Starbucks.

Payday loans, cash advance or check advance loans are commonly used phrases that are often called "deferred presentment service transaction." Licensed purveyors offer small, short-term, high-cost arrangements where the customer signs a post-dated check to cover the payday loan amount and service fee. The customer gets immediate cash, check or money order. They could face a balloon payment after 45 days, or be forced to re-up the loan at even higher interest.

The state of Michigan has one of the most progressive laws in the nation and it should stay that way. The state maintains an electronic database that payday lenders must check to see if a customer has any outstanding transactions and if it issues another loan and it is discovered, the payday loan company pays a fine. Payday loan companies are licensed by the state.

If people have complaints they can contact the Department of Insurance and Financial Services at 1-877-999-6442 or visit http://www.michigan.gov/difs.

Is there any reason for payday loans? Acting director Mulvaney has testified before Congress that small-dollar lending institutions serve an important function for many borrowers, especially those who may not be able to use traditional banking services. It may be the only recourse for people with damaged credit in need of transportation.

There may be other options. Asking a creditor for extended payment plans, borrowing from a friend, family member or employer, or getting a loan from a bank or credit union are almost always better options than turning to a payday lender. Keep exploring options. Liblang Law can help people assert their rights with payday loan companies. 

Please contact Melinda Curtis-Kollins for more information email melinda.kollins@gmail.com or call  (248) 722-5408.

Source: Liblang Law