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Payday Lending Expansion a No-Go for Now

PHOTO: Billboards opposing legislation that would have allowed payday lenders to offer installment loans were placed across the state by the Michigan Credit Union League. Photo credit: B. Laviolette/Michigan Credit Union League.
PHOTO: Billboards opposing legislation that would have allowed payday lenders to offer installment loans were placed across the state by the Michigan Credit Union League. Photo credit: B. Laviolette/Michigan Credit Union League.
January 6, 2015

LANSING, Mich. - It's a debt cycle many Michiganders have fallen into: quick cash from a payday loan that comes with high fees and interest rates, and sometimes questionable collection tactics.

For the moment, however, payday lenders have lost a bid to offer additional products to Michigan consumers. Dennis Greeno, manager of Newaygo County Service Employees Credit Union, says payday loans can be devastating.

"I see people that are in it every payday," he says. "They're forking out $60, $70 in interest to pay back a $600 advance. So in reality, when you annualize that out, it's probably 500 or 600 hundred percent."

Legislation that would have allowed payday lenders to issue longer-term loans with even higher fees failed to advance before lawmakers left for winter break last month. The Michigan Credit Union League coordinated a statewide campaign to help raise awareness of the initiative's potential dangers. Analysts predict the bill, which payday lenders say is in response to the popularity of their services, could be reintroduced.

Payday lenders typically don't perform a credit check, but ask borrowers to write a post-dated check for the amount they want to borrow, plus fees. The lender deposits the check after the borrower's payday, but borrowers often get trapped paying more fees to renew the loan when they can't pay it off on time.

Greeno says the payday lending industry needs more regulation, not more power.

"Sometimes I feel the more they can lend the person, the higher rates they can lend, they'll just jack it up and jack it up," he says. "Most of these people are at their mercy. I've seen people that have had multiple cash-advance places, where they're borrowing from one to pay the other."

The Better Business Bureau recently issued an alert warning of the pitfalls of payday lending, and advised consumers to consider a not-for-profit credit union as an alternative. Many Michigan credit unions offer short-term loans along with counseling and financial advice to help break the debt cycle.

Mona Shand, Public News Service - MI