In the state of Michigan payday lending is considered legal.
Michigan has a $600 limit on the amount a payday loan that a borrower can take from one lender. 2 loans are also allowed, however, from different lenders. Loans can be taken up to 31 days. Interest and finance charges and fees range from 15% to 11% (depending on the number of $100 transactions). All criminal actions against borrowers are prohibited.
Deferred Presentment Service Transactions Act governs payday lending in the state of Michigan since 2005. There hasn’t been much change to the industry for the past years regardless of the attempts.
Michigan Payday Lending Statutes
In the state of Michigan payday loans are considered legal according to the Mich. Comp. Laws 487.2121 et seq., or “Deferred Presentment Service Transactions Act“. Thus, in Michigan, payday loans are legally called deferred presentment service transactions.
While the practice is legal, there are certain limitations with regards to lenders that the latter should comply with provided they want to operate in the state.
Specifically, the Act requires that a lender provided customers with a written contract to sign. The contract should disclose all the includes fees, APRs, and repayment terms and timelines. It should also contain the list of consumer rights disclosed.
Loan Amount in Michigan
- The m
aximumamount of loan is $600 taken from a single lender.
- Borrowers are allowed to have not more than two outstanding loans, although, from different lenders.
Rates, fees and other charges in Michigan
“A licensee may charge the customer a service fee for each deferred presentment service transaction. A service fee is earned by the licensee on the date of the transaction and is not interest. A licensee may charge both of the following as part of the service fee, as applicable:
- An amount that does not exceed the aggregate of the following, as applicable:
- 15 percent of the first $100 of the deferred presentment service transaction.
- 14 percent of the second $100 of the deferred presentment service transaction.
- 13 percent of the third $100 of the deferred presentment service transaction.
- 12 percent of the fourth $100 of the deferred presentment service transaction.
- 11 percent of the fifth $100 of the deferred presentment service transaction.
- 11 percent of the sixth $100 of the deferred presentment service transaction.
- (b) The amount of any database verification fee allowed under §34(5). “ ( Comp. Laws 487.2121 et seq.)
While seemingly low 15%-11% service fees do not seem like a lot, they have a tendency to pile up, and this is the usual story for customers who resort to such loans or renew them often. Thus, real APR for payday loans in Michigan can reach 369% (*According to the Center for Responsible Lending 2019: “Typical APR based on the average rate for a $300 loan advertised by largest payday chains or as determined by the state regulator, where applicable.”).
- Also, Section 408.020. reads: “When no rate of interest is agreed upon, nine percent allowed as legal interest.“
Maximum term for a payday in Michigan
- Loans are given for the term of 14-31 days.
- Criminal actions against borrowers are prohibited in the state.
- In case a borrower cannot repay in time, an installment payback plan should be requested. Basically, lenders charge $15 for such services. Moreover, it is also legal for lenders to charge a $25 insufficient funds fee in case of defaulted repayment. The borrower is still responsible for the repayment and may be subject to collection actions from the lender.
- A borrower is also eligible to notify a lender with a letter in case the former considers that the latter was operating against the law. In such a case, a lender has got three days for a decision. In case a lender admits the violation, he should pay a borrower five times the fee (minimum $15) associated with the loan.
More information about payday loans in Michigan can be found on the official page of the Michigan Department of Insurance and Financial Services.
Borrowers who happened to have a bad experience with payday lenders or want to report illegal practices can use an Online Complaint Form.
The History of Payday Loans in Michigan
- 2005 – Michigan passed Deferred Presentment Service Transaction Act that regulates all payday lending in the state. There hasn’t been much change to it over the years.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. No lender in Michigan is now allowed to offer loans to the military in excess of 36% APR.
- 2017 – Senate Bills 430, 431, and 432 were introduced. They proposed to increase payday loan amounts to $2,500 and loan term to a maximum of 48 months. At the same time, APR would have been capped at 180%. However, all three bills seem to have never left the Senate Committee on Banking and Financial Institutions after getting there in 2017. And at the present moment
,there is nothing left but to wait. The law has proponents as well as numerous opponents.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (the federal rule is expected in November 2020).
- 2019 – In the light of the coming (or not) federal legislative restrictions, Michigan does not have any current state legislative proposals to bring on a vote.
(As of April 2019)