Tuesday, July 4, 2006

Drive around Detroit and you'll see signs everywhere. They're advertising low fee payday loans. As Susan Tompor of The Detroit Free Press notes: that's one way to look at it.

A new law mandating the state's payday loan lending went into effect June 1 industry. As a result, all payday advance lenders are required to charge less than they used to when you take out a payday loan. They don't exactly have a choice.

Here are some of the new rules:

- Lenders in Michigan cannot charge more than $76 for a $600 payday loan. They can slap on smaller fees if they want, but will they? It's pretty doubtful.

"It's hard to go any lower, to be honest with you, than what the state set," said John Rabenold, a spokesman for Check 'n Go.

- No loan can be for more than $600.

- A consumer now can have only two payday loans outstanding at once. But you can have only one payday loan per lender.

These changes are good news for cash-strapped consumers. When Tempor wrote about this subject last July, after a cash advance loan lending bill was passed by the state House and on its way to the Senate, she found consumers who were paying sizable sums.

Right now, consumers pay an absurd price to take out a payday loan - and it still makes little financial sense to do so even after the new limits in Michigan.

However, fast cash advance lenders aredefinitely gaining ground, as many people juggle their bills, try to avoid late fees and cope with higher heating bills or cuts in overtime pay. Payday advance lending stores are popping up in every part of town, including strip malls in several middle-class suburbs.

Federal Reserve Chairman Ben S. Bernanke noted in a speech last month that consumers had rarely heard of payday lending outlets a decade ago. Now, he said, there are more than 10,000 payday loan lending stores nationwide.

The most recent data from the Survey of Consumers Finances, sponsored by the Federal Reserve Board, showed that 25% of households had a loan from a finance company in 2004 - up from 13% in 1992. Yet up until last month, Michigan was one of a small group of states that didn't regulate Michigan payday loan lenders.

Thanks to the changes in Michigan's law, payday loan lending stores are required to provide disclosures to consumers. And you can complain if you're charged more than the new limits. Consumers should first complain to the lender as soon as they see something wrong.

For each violation, a provider of bad credit payday loans must return the check and the cash received under the agreement. The lender also would have to pay five times the amount of the fee charged - but not less than $15 or more than the face amount of the check. It's always good to read the signs on the windows to keep up with the deals, but it's even better to know how those signs got there in the first place.

This entry was posted on Tuesday, July 4th, 2006 at 1:15 pm and is filed under Michigan.