New Michigan ballot initiative would cap payday loan rates

A ballot initiative seeking to restrict interest rates charged by payday lenders has cleared a final procedural hurdle, with supporters ready to collect signatures that could place it on the ballot in November.

On Friday, the Michigan Board of State Canvassers approved petition language for the Michiganders for Fair Lending ballot initiative. As listed in the petition, the proposal would cap at 36% the annual percentage rate (APR) on payday loans and empower the Michigan attorney general to prosecute lenders who exceed that rate. The group claims that payday lenders are currently allowed to charge “interest rates and fees equivalent to a 340% annual percentage rate or more.”  

Josh Hovey, spokesperson for the campaign, called the charging of those rates “outrageous” and said that with the canvassers approval, they will soon begin collecting petitions to reform this “predatory lending practice”. The group says their initiative is modeled on similar legislation in 19 other states, including Nebraska which capped payday lending rates at 36% APR in 2020 with nearly 83% support.

However, business interest groups claim the measure will not provide protection from predatory payday loans, but instead penalize those lenders who follow the rules. 

Fred Wszolek is a Republican strategist and co-founder of Lansing-based Strategy Works. In an interview with Michigan Advance on Friday, he said the initiative is “effectively banning the industry under the guise of a proposal that simply limits the interest rate.”

Wszolek claims the industry is already tightly regulated and called APR a “stupid statistic” to use as a measurement.

“It’s a great sort of apple-to-apple comparison of this 30-year loan to that 30-year loan, but when you’re talking about a two-week loan, to translate the interest rate and fees into some annual percentage rate, it’s a dumb calculation,” he said. “I mean, it’s just a meaningless number. If you consider a bounced check charge to be a one-week loan to you, because they covered your check, then the APR on the $25 bounced check fee is like 1,200%.”

Wszolek claims that because of the short-term nature of payday loans, limiting the APR to 36% won’t provide the needed profit-margin for these lenders to operate their storefronts, deal with mandatory compliance regulations and write off the number of loans that will inevitably go unpaid. 

He also says that if the initiative is approved, it will only affect state-regulated operations, and not online lenders located overseas or tribal-owned payday lenders.

“I mean, they’re not getting rid of regulating this industry, from the standpoint of the consumer, because the consumer can’t tell the difference between all the websites. I mean, you can’t tell that you’re dealing with a tribal operated payday loan operation. It’s beyond the reach of Michigan law. You can’t tell that you’re dealing really with a company that’s in the Netherland Antilles” or has a “P.O. box somewhere in the Caribbean.”

Hovey answered those criticisms in an interview Friday with the Michigan Advance, acknowledging that while the ballot proposal only applies to state-licensed lenders, the fees being charged by those lenders are equivalent to triple-digit interest rates.

“I can’t imagine the average Michigander would consider a 300% interest rate to be ‘legitimate’ or fair because legitimate lenders don’t do that sort of thing,” said Hovey.

As for concerns that small dollar loans won’t be available, he says there are credit unions that offer payday loan alternatives.

“The president of Isabella Community Credit Union even testified to the House Regulatory Reform Committee just this week that they are able to offer small loans in as little as 15 minutes that have a maximum APR of 23% that can be repaid over an 11-month period,” Hovey said.

Groups supporting the ballot initiative include the Michigan League for Public Policy, Habitat for Humanity of Michigan and the Michigan Association of United Ways. Habitat for Humanity of Michigan President Sandra Pearson previously told the Associated Press that while payday lenders market short-term loans as a quick fix, they often result in borrowers finding themselves in a worse financial situation than before.

Michiganders for Fair Lending expects to begin gathering within the next two weeks the 340,047 valid signatures required to place the measure on the November ballot.