About half of US states allow payday loan companies to charge customers exorbitant interest rates, but a consumer group is seeking to change that in Michigan.
More payday loan stores than McDonald’s in Michigan
Believe it or not, there are more payday loan centers in Michigan than there are McDonald’s restaurants. That’s according to Josh Hovey, spokesperson for the Michigan Fair Lending Campaign.
His group seeks to prevent payday loan shops from charging exorbitant fees. Hovey says Michiganians spend more than $100 million a year on payday loan fees.
He notes that while $15 might not seem like a high fee on a $100 loan paid off in two weeks, it’s actually a ridiculous amount when the annual percentage rate is calculated.
For example, the Michigan Department of Financial Services and Insurance states that if you borrow $100 for two weeks, the maximum fee that may be charged is $15. But if you take a closer look, you learn that the interest amounts to more than $1.07 a day. Calculating the annual percentage rate brings you to a whopping 391% APR.
He says WXYZ-TV that Michigan is one of many states with a “payday loan debt trap.â€
“It’s fair to charge someone interest for a loan, but we don’t think 370% should be the number,” Hovey said.
A boost for lower interest rates
A petition circulated by Michiganders for Fair Lending has garnered 400,000 signatures. If approved, the petition would put a decision on the ballot in Michigan to let voters decide whether interest charged by payday lenders should be capped at 36% per year.
The chart above from the Center for Responsible Lending shows US payday lender interest rates, based on a $300 loan.
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