Wednesday, March 7, 2018

Michigan’s Payday Loan Rules Stay Tough In Spite of Federal Trend Against Regulation

Michigan has some of the toughest payday loan rules in the nation. Even if the U.S. Consumer Financial Protection Bureau backs off under new leadership, these rules make sure Michigan residents are protected from abusive lending practices and dangerous debt cycles.

Why People Use Payday Loans

Imagine Ann, a single mother living in Metro Detroit. Ann lives paycheck to paycheck, but generally manages to make ends meet. Then Ann’s vehicle was a victim of the monstrous potholes that erupted in Macomb County – blowing 2 tires and damaging the rims of her wheels. Now she is facing hundreds of dollars in unexpected car repair costs and her budget is out the window.
To deal with the emergency, Ann heads to a storefront office, in one of the meanest parts of town, to get a little cash to get her through to the next payday. The Payday Loan company is all too happy to help, and to charge her up to 400% interest for the loan. When Ann’s paycheck isn’t enough to pay off the payday loan on top of all her other expenses, she will face late fees, fines, and even more interest, catching her up in a cycle of perpetual debt. 

Why Payday Loans are a Problem for Poor Families

That cycle creates problems for poor families that go far a flat tire. Consumer protection attorney Dani K. Liblang explains:

“More than four out of five payday auto loans are re-borrowed within a month. 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.”

Payday loans, cash advance, or check advance loans (formally called “deferred presentment service transactions”) give customers access to immediate cash, checks or money orders. But they come with exorbitant interest rates and balloon payments after 45 days. When poor families don’t have the money available to pay of the loan, they can be forced to re-up at even higher interest rates.

CFPB’s New Acting Director Signals Roll Back on Federal Payday Loan Safeguards

Richard Cordray, the former head of the Consumer Financial Protection Bureau, stepped down last November in the face of pressure from Republican legislators over tougher regulations designed to protect consumers. His replacement, Mick Mulvaney, of the Trump Administration, issued a statement on January 16, 2018, which signaled his intent to roll back federal payday loan rules. So far, Mulvaney has frozen hiring and placed a temporary hold on payments made to victims of illegal banking practices. If further changes occur, they could leave borrowers across the country unable to make informed decisions about the true costs of these short-term loans.

Michigan’s Payday Loan Rules Protect Consumer Interests

Under Bill Schuette, the Michigan Attorney General’s Office has created tough payday loan rules that regulate lenders and make sure borrowers know what they are getting into. The state maintains an electronic database of outstanding transactions. Licensed short-term lenders must check that database to see if the consumer has any outstanding loans before it issues a new one. If it does issue an overlapping loan and is discovered, the lender will be fined. 

Lenders are also required to ask for details about the purpose of the loan and the borrower’s financial situation before issuing the loan. They must also provide Michigan consumers a written and signed agreement that lays out the fees they will pay connected to the loan, along with the process to file a complaint with the Department of Insurance and Financial Services.

There are many options than turning to short-term lending when emergencies arise. Consumers can ask a creditor for an extended payment plan, borrow from a family member or friend, or get a loan from a bank or credit union. In some cases, even a credit card is less expensive than a payday loan. But when consumers are faced with no other choice, Michigan’s payday loan rules make certain they know what to expect and help them avoid the cycle of debt.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, P.C., in Birmingham, Michigan. She helps consumers facing collections harassment resolve their outstanding debts. If you are being harassed by creditors, contact The Liblang Law Firm, PC, for a consultation.

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