Expansion of payday loans means quick money and cycle of debt for Michigan’s poor, Bishops say

A Michigan proposal to quadruple the maximum loan amount allowed for payday lenders would exploit the poor and trap many in a cycle of debt when alternatives are available, the Michigan Catholic Conference has told a Senate committee. ‘State.

“Residents of the state may not know that there are charitable agencies and low-income loan opportunities to help those in dire straits who need quick access to money. money,” said David Maluchnik, vice president of communications for the Michigan Catholic Conference. . 1.

“We must oppose high interest loans which add a greater financial burden to the poor, because they contribute to an economy of exclusion rather than serving the dignity of the human person. The bill before the committee today is a form of modern usury; it would exploit struggling individuals and families and pose a danger to the common good,” he said.

Maluchnik testified before the Senate Regulatory Reform Committee against House Bill 5097, proposed by State Rep. Brandt Iden, R-Kalamazoo. The bill passed the House of Representatives in May, with the support of 15 Democratic lawmakers.

The bill increases the amount that can be borrowed under the law from $600 to $2,500. It would allow an 11% monthly fee on the loan principal for payday loans, also known as cash advances.

The annual interest rate on a maximum loan would exceed 130%, the Catholic conference said. In a leaflet criticizing the bill, he said it was “exorbitant”.

“Data shows that rates like these wreak financial havoc on people who typically need a one-stop cash solution. In order to pay off these loans, more than 70% of borrowers take out new payday loans in the 30 days, resulting in a cycle of long-term debt for their family,” the flyer reads.

The pamphlet recommends alternatives to payday loans: alternative loan programs, credit unions and financial education resources. During the coronavirus pandemic, he said, credit unions in Michigan issued nearly 9,500 emergency cash loans totaling more than $22.5 million.

Other critics of the law include the Michigan Poverty Law Program and Habitat for Humanity of Michigan.

Iden, the bill’s backer, told the Detroit News in September that inflation has been rising since 2005, when payday loans first became legal and the limit was set. It takes more money now to replace a set of tires than 15 years ago. He said “a number of conversations” with constituents inspired the decision.

The industry also competes with online lenders.

Representative Diana Farrington, R-Utica, chair of the Financial Services Committee, opposed the bill. She said the average loan is $400.

“I was just worried because people are going into debt with payday loans,” she told the Detroit News.

Rep. John Chirkun, D-Roseville, supported the bill. He said people need the ability to get cash in an emergency like the pandemic, and those who make payments on time will boost their credit rating.

Hickson said under the proposed change, someone could pay $4,600 on a $2,500 loan over one year, the maximum loan term allowed. He called the proposal a “legalized loan shark”.

The Detroit News reported that companies or lobbyists supporting the increase in payday loans donated tens of thousands of dollars to Michigan lawmakers’ campaigns.

The Church has always taught that usury is evil, including in many ecumenical councils.

In Vix pervenit, his 1745 encyclical on usury and other dishonest profits, Benedict XIV taught that a loan contract requires “that one give back to another only what he has received. The sin lies in the fact that sometimes the creditor desires more than he has given. Therefore, he argues that a gain is due to him in addition to what he has lent, but any gain that exceeds the amount he has given is unlawful and usurious.

In his February 10, 2016 general audience address, Pope Francis taught that “Scripture persistently urges a generous response to requests for loans, without making petty calculations and demanding impossible rates of interest,” citing Leviticus.

“This lesson is always timely,” he said. “How many families are there in the street, victims of profiteers… It’s a serious sin, usury is a sin that cries out before God.

Sally J. Minick