Payday Loan Times

The heyday of the payday loan company may be about to end in Battle Creek.

By April, organizers expect to open the Inspire Community Federal Credit Union, created to help low- to middle-income area residents avoid the financial minefields of predatory lenders.

The planned credit union has leased space at 80 W. Michigan Ave., Suite B, next to the Old Tyme Bakery at the base of a city parking garage, and is working on getting federal regulatory approval to open.

“This is going to create real change that will really make a difference in people’s lives,” said Charles Rose, a member of the credit union- steering committee.

“I think that if you take a look at a lot of the efforts that are going on, some of them, two years from now, will say, ‘Hey, it was nice that we did that,’” said Rose, also neighborhood economic development administrator for the Battle Creek neighborhood services department. “But this credit union will stay. It will be affecting generations of people in this city.”

Eric Tobin, the project coordinator, noted that this is a community development credit union, created to provide an alternative to the expensive choices that low-income people often find themselves having to make in tough times; i.e. cash loans.

Among the first offerings will be short-term loans that will make a lot more financial sense than using a providers of savings account payday loans, which charge annual interest rates of more than 400 percent, Tobin said Tuesday.

Also available will be two-year installment loans as an attractive alternative to acquiring goods through rent-to-own dealers, Tobin said.

“Somebody needs to fill that gap, and somebody needs to do that without taking advantage of them,” he said.

That type of lending will be coupled with referrals to local financial education programs such as those offered by Neighborhoods Inc. and Guardian Finance and Advocacy Services, Tobin said.

Guardian’s Jackie DeHaan championed the credit union idea after hearing about it at a conference about three years ago, Rose said.

In recent months, organizers have selected and trained a board of directors, picked their name and location and are revising their business plan, reports The Battle Creek Enquirer.

The organization has about $140,000 in seed money from the W.K. Kellogg Foundation, Battle Creek Community Foundation and Miller Foundation to move toward opening day.

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Complaints filed by Democratic challenger Dan Scripps against incumbent David Palsrok, R-Manistee, were dropped today by the Secretary of State, the morning after they were formally filed.

The complaints were regarding two allegations from Scripps, who is seeking the 101st District seat Palsrok currently holds, that Palsrok violated the Michigan Campaign Finance Act. Specifically, they accused Palstrok of being influenced by the payday loan industry.

Ken Silfven, spokesman from the Department of State said the complaints were dropped because Scripps provided no evidence showing Palsrok violated any Michigan Campaign Finance Act laws.

Inside the payday advance accusation: The issue stems from campaign contributions Palsrok took from the president and five members of the Board of Directors of Community Loans of America, while the Legislature was working on a bill dealing with the quick cash advance industry.

Scripps cited section 54 the Michigan Campaign Finance Act that states:

“A corporation, joint stock company, domestic dependent sovereign, or labor organization shall not make a contribution (to a political candidate).”

In other words: the money provided to the campaign via providers of no faxing payday loans was meant to influence Palsrok.

“It’s pretty naive to think that these people acting over three different states would give the maximum contribution allowed and not think they are acting for the corporation,” Scripps said when he filed the claims. “He is also the only one in the House of Representatives who has ever received a contribution from Community Loans of America.”

Scripps stated that these contributions came during a critical time, just before the bill was vetoed by Gov. Jennifer Granholm on interest rates for the Community Loans of America in January 2004 and a time when new regulations on cash advance loans were set in 2005.

Palsrok said the allegations were false and came from “a desperate candidate who is campaigning negatively four weeks before election.”

“The contributions were made at a time when I was in Lansing for a fundraiser and they could not make the fundraiser and sent me a contribution,” Palsrok said. “When someone gives me a contribution, I take it as they feel I am a good Representative and want to contribute to my campaign.”

Palsrok said he doesn’t take money for votes.

The payday cash advance bill was Senate Bill 474 and it would have capped the interest rate payday lenders charge at 13.25 percent. Palsrok voted in favor of the legislation. The governor told news services at the time she vetoed it because she felt the interest rate proposed was still too high for the borrower.

With Michigan's economy sinking - thousands of unemployed factory workers and underemployed service workers are looking for jobs and many people are struggling to pay their bills - you might expect business to be booming at payday cash loan centers.

In reality, those stores are suffering right along with hundreds of other businesses in the state.

The Detroit Free Press had the story.

A new Michigan law that limits how much providers of cash loans can lend and lowers the fees they can charge borrowers is taking a toll. So is the fact that only those getting a paycheck can qualify for a loan, which leaves out the growing ranks of unemployed in Michigan.

"We haven't seen a spike in business, but the (bad) economy and the law happened simultaneously," said Phil Locke, president of the Michigan Financial Service Centers Association, which is comprised of mostly payday loan store owners. "I don't know if it was the economy or the law."

At least 25 small regular and no faxing payday loan centers in Michigan, out of about 700, have closed since the law took effect in June, Locke said, including five of his 32 lending offices.

Payday loans - also known as check advance loans, postdated check loans or deferred deposit check loans - are a fast and easy way for people to get cash to tide them over until their next payday.

Explosion of payday loans: The number of cash advance payday loan shops exploded in the 1990s. While the industry continues to grow nationwide, it's hit a skid in Michigan because of the strict new regulations and the continuing climb in the number of unemployed.

Some loan shop owners say the law is unfair and unnecessary because the industry already was regulating itself. Even their customers defend them, saying it's faster and easier to borrow money from a payday loan or personal loan center than from a bank or credit union.

Critics argue that payday lenders were not regulating themselves, but were simply taking advantage of desperate, vulnerable people.

"These places prey on the people who can least afford it," said Sen. Martha Scott, D-Highland Park, who lobbied for even lower lending fees.

During the debate on the bill, she presented an amendment to lower the maximum interest rate to 10 percent from 15 percent on bad credit payday loans, but it was defeated.

In July, payday advance loan legislation finally went into effect in Michigan had few rules to control the industry. Meant to control the industry, this new set of industry-backed state regulations went into effect have helped to weed out some of the more predatory players.

Steve Leach, who operates 50 Instant Cash Advance offices around Michigan, said his Grand Rapids-based payday loan company was actually glad to see the regulations.

"We were unhappy with some of the operators out there who were charging 30 percent more (in two weeks) than we were,'' he said.

The new legislation allows cash loans to possess an annual interest rate of up to 375 percent on a $250 loan, plus various fees. It also limits the number and amount of loans consumers can take out and forbids threats of criminal prosecution against people who fail to pay.

But not everyone is pleased.

Jean Ann Fox, of the Consumer Federation of America, said the new law is unfortunate because Michigan already had a much more reasonable small-loan law on its books. It was just never enforced.

That law capped the annual rate on small, no faxing payday loans at 25 percent, allowing a loan-processing fee of up to 5 percent for amounts up to $250.

"They would have been better off to enforce the rule they had,'' she said. "If they felt they had a loophole, then close it.''

While Fox advises against ANY payday loan use, Advance America - the largest of the publicly held payday advance companies - said its average customer uses the service seven or eight times a year. He or she pays average fees of $55 per transaction with an average loan amount of $339. That works out to $330 to $440 in fees, on average, per year, per customer.

Payday advance business is booming: Jamie Fulmer, director of investor relations for Advance America, said the company offers a service millions of customers need. For many, the alternatives of credit card late fees, bounced checks or overdraft fees are far more expensive than the payday advance fees.

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State Sen. Martha Scott may be the matriarch of politics in her Detroit district, but one of the region's rising political stars is threatening to oust her from the Legislature in the August 8 Democratic primary.

Tough words are being exchanged between Scott, 70, and state Rep. Bill McConico, 33, over Scott's effectiveness and McConico's inexperience in the race for the 2nd Senate District, which covers Highland Park, Hamtramck, northeast Detroit, Harper Woods and the Grosse Pointes.

Challenger McConico might be less than half the incumbent's age, but the state representative is emphasizing his achievements, pointing to laws he sponsored, one of which regulated the payday loan industry. He also has repealed the state's mandatory-minimum drug sentencing laws, and created the so-called Blight Court in Detroit that deals with violations like illegal dumping and abandoned real estate.

The new law mandating the state's payday loan business took effect June 1, and as a result, all lenders are required to charge less than they used to when payday loans are issued. With the passage of the law, a payday loan company now cannot charge more than $76 on a $600 cash advance. No loan can be for more than $600, and a consumer is limited to having only two cash loans outstanding at once.

It will be interesting to see how this race shapes up as the primary approaches, and what role, if any, the new laws play in deciding its outcome. The quick payday loan business has become increasingly popular in the state, and Michigan's consumers need to elect the representatives most likely to protect their rights.

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.

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Eric Tobin, 31, felt ashamed during his first trip to a payday loan establishment.

In an interview with the Battle Creek Enquirer, he describes carrying a stack of personal documents (pay stubs, bank statements, copies of past utility bills) in a large envelope, parking in a neighboring lot and looking both ways upon entering and exiting the small office.

He was afraid someone would see him, and worried that patronizing such a place would make him appear desperate.

But he was.

Tobin recently lost his job as a senior analyst for a reputable financial services firm, and along with the job went benefits. Following an illness, the young Athens, Mich., man and his wife quickly found themselves unable to pay a pile of medical bills. Then, an overdue electric bill spurred a two-year financial free-fall.

"That was the last straw. I didn't want to further damage my credit by not paying my bills, so I went to a payday lender," Tobin said.

As of Thursday, Michigan's laws changed to better consumers from so-called "predatory" lenders. Increased payday loan competition has driven down fees and interest, but in November Michigan passed House Bill 4834, which caps payday advance loan fees, sets limits on individual loans and prohibits rollovers.

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It's Money Smart Week in Detroit, Mich., an annual seminar in which young and older consumers can learn more about money. The program, started by the Detroit branch of the Federal Reserve Bank of Chicago in 2004, will involve upwards of 300 classes and workshops in greater Detroit and throughout the state of Michigan.

This is the place to get your financial questions answered. If you're curious about the Medicare prescription drug changes, a four-hour expo on money issues for seniors will examine drug coverage, starting at 10 a.m. Monday at the St. Patrick Senior Center. Unwilling or unable to deal with banks? There's a seminar geared toward people without checking accounts. And that's just the beginning.

The week's events will feature sessions on car and home loan financing, personal money management, identity theft, consumer rights, the importance of credit reports, the potential dangers of instant payday loans, and much more. If things go according to plan, the subject matter may not be enthralling, but it will be essential — and draw many visitors.

Lansing, MI — After the Senate and House approved the Michigan payday loan bill, Governor Granholm signed the piece of the legislation. This new law regulates payday lending in Michigan.

The new law limits borrowers to a maximum $600 loan in a 31-day period, and lets lenders charge service fees between 11% and 15%.

The legislation also requires lenders to get a license from the state by June 1 and limits customers from taking out multiple payday advances at the same time.

Lansing, MI — Michigan will soon join the list of states with consumer protection again payday loan lenders. Previously, Michigan was just one of fourteen states without any protection.

Things are going to change. The state house voted 98-6 to approve a bill that would regulate the payday loan industry.

House Bill 4834 would limit borrowers to a maximum $600 loan in a 31-day period and let lenders charge service fees between 11 percent and 15 percent.

Next up for the bill? It needs to go before the Senate and Gov Jennifer Grandholm must sign it.