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Payday Lenders Strip a Half Billion Dollars in Five Years from Vulnerable Michiganders

Tuesday, August 21, 2018

New research from Center for Responsible Lending reveals disproportionate concentration of payday lenders in Michigan rural and low-income neighborhoods and communities of color

DURHAM, N.C. -- Payday lenders have targeted vulnerable Michigan communities, disproportionately locating their stores in communities of color, rural areas, and low-income neighborhoods, according to a new report from the Center for Responsible Lending (CRL). Through a business model designed to trap people facing economic hardship in long-term cycles of debt, payday lenders raked in $94 million in 2016 and more than $500 million in five years. Two thirds of Michigan payday loan stores have headquarters outside of the state.

Power Steering: Payday Lenders Targeting Vulnerable Michigan Communities finds that payday loans in Michigan carry more than 340% annual percentage rate (APR) and that the storefronts peddling these loans are more often located in communities of color, which makes closing the racial wealth gap difficult. Rural census tracts have more than the average share of payday lending stores as well, and, not surprisingly, low-income communities are heavily targeted.

"The debt trap is alive and well in Michigan, micro-targeting these vulnerable communities,” said CRL Senior Researcher Delvin Davis, who co-authored the report. “The Consumer Financial Protection Bureau found that a full 70% of loans in Michigan are taken out on the same day the previous loan was repaid, and 86% within two weeks, demonstrating the repeat cycle common to payday lending elsewhere. Our data pinpoints where in Michigan these cash extraction mills are placed for maximum effect, showing that people of color, low-income families and rural folks are subject to their heaviest areas of concentration."

"Michigan lawmakers could protect these communities in the same way that fifteen other states plus D.C. protect their citizens, by enforcing an interest rate cap of 36% or less on these loans,” said CRL’s Deputy Director of State Policy, Lisa Stifler, who co-authored the report. “This keeps out those unscrupulous companies that charge triple-digit interest to customers with no regard to whether they can afford the impossible terms."

In addition to the fee drain figure of a half billion dollars over five years, the report specifically finds the following:

  • Of the more than 550 payday stores in the state, the top ten largest lenders operate more than 86 percent of all payday stores, with the top three largest lenders operating over half of all stores.
  • While statewide there are 5.6 payday stores per 100,000 people in Michigan, payday store concentrations are higher in census tracts that have more African-American and Latino residents. Census tracts that are over 25% and 50% African-American and Latino have 7.6 and 6.6 payday stores per 100,000 people, respectively.
  • Rural census tracts have a payday store concentration of 7.1 stores per 100,000 people, while census tracts below 80% of the state’s median household income have 9.1 stores per 100,000 people.

Payday loans are marketed as quick-fix solutions to financial emergencies. However, they often carry triple-digit interest rates and unaffordable payments to satisfy the loan, making them extremely difficult to pay off. Payday loans are associated with a cascade of additional financial consequences, such as delinquency on other bills, bank penalty fees, bank account closures, and even bankruptcy.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Carol Hammerstein at carol.hammerstein@responsiblelending.org.