(Nadia Ramlagan/Michigan News Service) Critics of a bill being considered by lawmakers that would allow payday lenders to offer longer term, higher dollar loans say the legislation puts the most vulnerable Michiganders at risk.
House Bill 5097 would allow payday lenders in Michigan to make loans of up to $2,500 with no limit on the length of the loan.
Sandra Pearson, president and CEO of Habitat for Humanity of Michigan, says families don’t always know what they’re getting into when they take out a payday loan.
“Our financial coaches and counselors and educators are more and more interacting with families who are coming to us wanting help,” she relates. “And probably about 30% of those coming to us are involved in payday lending loans that they’re trapped in right now, and we’re working toward helping them get out of this cycle.”
Pearson adds that a borrower who took out a $2,500 loan would end up paying more than $7,000 to the lender at the end of a two-year period.
Several states, including Georgia, Colorado and Montana, have either banned payday lending or have strict caps on the annual interest charged.
Many people who walk through the doors of a payday lender are desperate for cash.
De’Angelo Boone works as a community outreach manager for Habitat for Humanity. He says when circumstances led him to take out a payday loan, he felt he had no other choice.
“Well, my experience is I ended up in a situation where I took custody of my younger brother, my younger sister and two other kids in the community,” he explains. “I was also robbed by a family member, and I was put into a financial crisis.
“And it just kind of created a cycle, because you go back and you pay it back but then you pay back this high additional amount. And then you’re trying to recover from the amount that you’re paying back.”
Pearson says borrowers who take out these loans often end up defaulting, closing their bank account and even filing for bankruptcy. She says residents should look elsewhere for assistance.
“Instead, reach out to your Habitat for Humanity, reach out to your local credit unions and even your church, take the time to reach out to your own network, your own resources, and people will help you,” she urges.
Pearson says 70% of Michigan borrowers take out a new loan the same day they’ve paid off a previous loan.
House Bill 5097 would allow lenders to make loans to individuals who already have a high-cost loan, and would permit the rollover of short-term payday loans into a longer-term loan.