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Cash-stretched consumers are dishing out up to nearly $36 just to get a $250 two-week payday loan in Michigan. Sadly, someone whose wallet is running on empty does whatever it takes to get fast cash. But when you run the numbers, you realize that Michigan consumers would pay an annualized percentage rate of 375%, according to a report by the Consumer Federation of America, Consumers Union and the National Consumer Law Center.
The report gives a grade to states on how well they protect consumers from charges on certain small-dollar loans. The consumer study gave Michigan failing marks for its regulations regarding payday loans and 6-month $500 unsecured installment loans. Michigan's fee structure amounts to an annual percentage rate of 43% on the 6-month loans.
States received a passing grade if the loan product's APR was 36% or less.Costly alternative. As many consumers scramble to pay bills, it's wise to pay attention to just how costly quick-fix loans can be compared with other credit.
Elizabeth Renuart, staff attorney for the National Consumer Law Center, said some homeowners nationwide have turned to payday lenders as they struggle to make their mortgage payments. Other states look worse. Kentucky's annual rate would be 460%, according to the survey. Missouri's annual percentage rate for the same loan would be 1,955%.
Ohio, however, did get a passing grade. Ohio enacted a 28% annual interest cap for payday loans, effective Sept. 1. The annual percentage rate had been 391%. "Unfortunately, many states aren't providing consumers with the protections they need to avoid being ripped off by modern-day loan sharks," said Jean Ann Fox, director of financial services for the Consumer Federation of America.
Michigan received passing grades in three out of five categories, including prohibiting a $300 one-month auto-title loan. Michigan regulators call the failing grades in two categories misleading. They say the fees associated with the transactions are not considered interest.
"Michigan does not consider this a 'loan,' " said Jason Moon, public information officer for the Office of Financial and Insurance Regulation. A waste by any name. Whatever you call these things, I'd still say it's a foolish way to use your money.
A maximum fee structure in Michigan went into effect in 2006. The new state law did force some lenders to charge lower fees. Now, a lender in Michigan can charge up to $29 for a $200 advance. A Michigan consumer can borrow up to $600 with one payday loan and it costs up to $76. Before the law changed, I talked to one Detroit man who paid $90 on a $500 payday loan. Now, you'd pay $65 for a $500 advance. On each transaction, the licensee may also charge the customer a 45-cent database verification fee. Even so, people are still paying far, far too much.
Source: http://www.freep.com/
