Michigan Senate Passes 36% Rate Cap on Payday Loans

After Michigan’s Board of State Canvassers declined to certify a ballot initiative proposal to cap interest and fees on payday loans in 2022, the Michigan State Senate last week passed legislation that would cap payday loan APRs at 36% if it the measure were to become law. In order to do so, however, it first must pass the State House and be signed by Governor Gretchen Whitmer.

The legislation passed the State Senate by a vote of 24-13 in which all Democrats, joined by four Republicans, supported it.

Under current state law, borrowers can take out payday loans for amounts up to $600, with lenders able to charge service fees based on a sliding scale. According to Michigan Public Radio, “it starts with a 15% fee for the first $100, then 14% for the second hundred, 13% for the third hundred, 12% for the fourth hundred, and 11% for the fifth and sixth hundred dollars borrowed.” Because of this scale, advocates of the measure to cap interest rates allege the total interest rate charged can eclipse triple digits.

Supporters, like bill sponsor Senator Sarah Anthony (D-Lansing), said that the measure would “end the cycle of debt for a lot of Michigan families.” But opponents of the rate cap measure pointed out that these loans provide vital services to financially underserved consumers.

“Finding yourself at the end of your paycheck when you have an urgent need like a car repair is a horrible place to be in,” said Sen. Lana Theis (R-Brighton), during debate over the legislation. “It’s made even worse if your credit card is maxed out, or you even can’t get a credit card due to bad credit. You’re stuck between a rock and a hard place. You ask for a loan from your family, if you can. But what if you can’t? That’s the space payday lenders have been filling.”