A Michigan proposal to quadruple the maximum lending amount allowed for payday lenders would exploit the poor and trap many people in a cycle of debt when alternatives are available, the Michigan Catholic Conference has told a State Senate committee.
“People in the state may be unaware that charity agencies and low-income lending opportunities exist to assist those who are in dire circumstances and need quick access to cash,” David Maluchnik, vice-president of communications for the Michigan Catholic Conference, said Dec. 1.
“High-interest loans that add greater financial burden to poor people should be opposed, as they contribute to an economy of exclusion rather than serving the dignity of the human person. The legislation before committee today is a form of modern-day usury; it would exploit individuals and families facing hardship and poses 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 support from 15 Democratic lawmakers.
The bill increases the amount that can be borrowed under the law from $600 to $2,500. It would allow monthly fees of 11% 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 flier criticizing the bill, it said this was “exorbitant.”
“Data shows that rates such as these wreak financial havoc on individuals who typically need a one-time cash solution. In order to pay these loans off, over 70% of borrowers take out new payday loans within 30 days, causing a long-term debt cycle for their family,” said the flier.
The flier recommends alternatives to payday loans: alternative lending programs, credit unions, and financial education resources. During the coronavirus pandemic, it said, Michigan credit unions have made nearly 9,500 emergency cash loans totaling over $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 increased since 2005, when payday loans first became legal and the limit was set. It now takes more money to replace a set of tires than 15 years ago. He said “a number of conversations” with constituents inspired the move.
The industry is also competing with online lenders.
Rep. Diana Farrington, R-Utica, chairwoman of the Financial Services Committee, opposed the bill. She said that the average loan is for $400.
“I was just concerned because individuals get into a debt cycle with payday lending,” she told the Detroit News.
Rep. John Chirkun, D-Roseville, supported the bill. He said people need the opportunity to get money in an emergency like the pandemic, and those who make payments on time will build their credit rating.
Hickson said that under the proposed change, someone could pay $4,600 on a $2,500 loan over a year, the maximum loan term allowed. He characterized the proposal as “legalized loan sharking.”
The Detroit News reported that companies or lobbyists backing increased payday lending had given tens of thousands of dollars to Michigan lawmakers’ campaigns.
The Church has consistently taught that usury is evil, including in numerous ecumenical councils.
In Vix pervenit, his 1745 encyclical on usury and other dishonest profit, Benedict XIV taught that a loan contract demands “that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.”
In his General Audience address of Feb. 10, 2016, Pope Francis taught that “Scripture persistently exhorts a generous response to requests for loans, without making petty calculations and without demanding impossible interest rates,” citing Leviticus.
“This lesson is always timely,” he said. “How many families there are on the street, victims of profiteering … It is a grave sin, usury is a sin that cries out in the presence of God.”