Michigan's Dual Loan Policy: Is It Allowed?

Michigan's payday loan landscape has been described as murky, with the state being the last in the country to authorize payday lending services in 2005. While payday loans are legal in the state, there are some consumer protections in place. Borrowers can take out up to two loans at any one time for no more than $600 each, typically to be repaid within a two-week window. However, there are no caps on interest rates, which can be extremely high, and lenders are not required to disclose the APR, which can be confusing for borrowers. Efforts to regulate the industry have been gaining momentum in recent years, with proposed legislation to cap interest rates and give the state attorney general more power to prosecute lenders who break the law.

Payday loans are legal in Michigan

In Michigan, you can have up to two payday loans at any one time, but they must be from different lenders. The maximum amount for each loan is $600, and borrowers typically have to repay the loans within two weeks. While Michigan does not allow service fees to exceed a descending percentage rate—15% for the first $100 borrowed, 14% for the second $100, and so on—the way the current law is written means that the annual percentage rate (APR) can far exceed this amount. For example, a two-week $300 loan could see an APR of around 369%.

The high interest rates associated with payday loans can trap people in a cycle of debt. Borrowers often struggle to repay their balances within the short time frame, and when they can't pay their debts, lenders may charge them a rollover fee to push back the due date or offer another payday loan to pay off the previous one. According to the U.S. Consumer Finance Protection Bureau, around 70% of Michiganders who use payday loans take out another loan the same day they've repaid one.

While payday loans are legal in Michigan, the state has taken a stance against tribal lenders, a type of short-term loan provider that partners with Native tribes to share in their tribal immunity and sidestep consumer protection regulations. Tribal lenders are technically legal in Michigan, but the state has made it clear that using tribal status to ignore regulations is unacceptable.

Two loans at once are allowed

In Michigan, you can have up to two payday loans at once, though they must be from different lenders. Payday loans are legal in Michigan, but there are some consumer protections in place. The maximum amount for each loan is $600, and they are to be repaid typically within a two-week window. This means that if you borrow $300 from a payday lender, you can get another loan for $300 from a second payday lender at the same time. The amount charged by the first lender is irrelevant to whether or not you can qualify for the second loan.

The State of Michigan maintains an electronic database that payday lenders must check before issuing a new loan. If a customer has two outstanding payday loans, the payday lender cannot issue another one. If the electronic database is unavailable, the customer must sign a statement indicating that they do not have an outstanding payday loan with the current payday lender and that they do not have two outstanding payday loans with other payday lenders in the State. Payday lenders must then keep track of that information in a statewide system so borrowers cannot go to multiple providers and secure more than two loans.

While Michigan does impose some restrictions on the payday loan industry, it does allow for interest rates well into the triple digits on short-term loans. Michigan law currently allows interest of up to 15% on the first $100 of loans, with the interest rate decreasing as the borrowed amount increases up to the maximum of $600. This means that under the current system, borrowers who are loaned $100 for two weeks would be required to repay $115, an annual percentage rate (APR) of 391%.

There have been recent efforts to regulate the payday loan industry in Michigan further. In 2022, a proposed initiative to stop payday lenders from charging predatory interest rates did not get enough signatures to appear on the midterm ballot. However, the Michigan Senate recently passed legislation that would prohibit sky-high interest rates on short-term payday loans, capping interest rates on quick-cash loans at 36% annually. This legislation now heads to the House for approval.

They must be from different lenders

Michigan allows payday loans, which are short-term loans with high interest rates. While payday loans are legal in the state, there are some consumer protections in place. For instance, borrowers can take out up to two payday loans at any one time, but these must be from different lenders. Each loan cannot exceed $600, and they are typically to be repaid within a two-week window.

The State maintains an electronic database that payday lenders must check before issuing a new loan. This ensures that borrowers do not exceed two loans. If the database is unavailable, the borrower must sign a statement indicating that they do not have two outstanding payday loans with other lenders in the State.

The high interest rates and fees associated with payday loans can create a cycle of debt that is difficult for borrowers to escape. In Michigan, there have been efforts to regulate the industry and crack down on predatory lending practices. For example, there is proposed legislation to cap interest rates on payday loans at 36% annually, which would bring it in line with the rate cap outlined under the federal Military Lending Act.

While some argue that tougher regulations are necessary to protect vulnerable borrowers, critics of the proposed changes contend that it could hurt low-income residents who rely on these loans. Nevertheless, the current system in Michigan allows for interest rates well into the triple digits, which can quickly add up and force borrowers to take out additional loans to make payments.

Each loan is limited to $600

In Michigan, payday loans are legal, but there are some consumer protections in place. The most payday loan debt a person can have in Michigan is $600. This limit applies whether the debt is from a single loan or multiple loans. In other words, each loan is limited to $600.

Michigan law allows borrowers to take out up to two loans at any one time, with each loan not exceeding $600. This means that a borrower can have a maximum of $1200 in payday loan debt at any given time. The $600 restriction applies only to the principal amount of the loan, not the face amount of the post-dated check. Therefore, any fees paid by the borrower do not factor into the $600 restriction. For example, a borrower can take out a $300 loan from one payday lender and another $300 loan from a second payday lender.

Payday lenders in Michigan must keep track of borrower information in a statewide system to ensure that borrowers do not exceed the limit of two loans. This system helps prevent borrowers from obtaining more than two loans or securing excess debt. The state of Michigan also maintains an electronic database that payday lenders must check before issuing a new loan. If a borrower already has two outstanding payday loans, a payday lender cannot issue another one.

While Michigan imposes some restrictions on payday loans, critics argue that these laws do not go far enough to protect borrowers from the potential harms of payday lending. Efforts are currently underway to introduce new legislation that would further regulate the industry and address concerns about high interest rates and fees.

Payday lenders must verify eligibility

In Michigan, a customer can have no more than two payday loans at a time, and these cannot be with the same payday lender. Payday lenders must verify a customer's eligibility and check the state's electronic database before issuing a new loan. If the database is unavailable, the customer must sign a statement indicating that they do not have an outstanding payday loan with the current lender and that they do not have two outstanding payday loans with other lenders in the state.

To be eligible for a payday loan in Michigan, borrowers must provide proof of identification, residency, income, bank statements, and other financial documents. Lenders may also require valid identification and verification of income from a job or other sources. The maximum loan amount allowed in Michigan is $600 per borrower, including fees, with a maximum repayment term of 31 days per loan.

Payday loans in Michigan are governed by the Deferred Presentment Service Transaction Act, which limits the number of loans a customer may have at one time, the service fees a lender may charge, and the repayment period. The law does not give payday loan customers the right to have their loan repayment periods extended, and no repayment period can exceed 31 days from the date of the loan. If a customer cannot repay their loan on time, the payday lender may deposit the customer's check. If there are insufficient funds to cover the check, the customer will be responsible for paying the face amount of the check, fees to their financial institution, and the lender's returned check fee.

Customers who have taken out eight or more payday loans in a 12-month period and are unable to repay their current loan may request an installment repayment plan. The customer must request the plan, pay a charge for entering it, and repay the loan in three equal installments on the next three dates they receive regular wages. During this time, the customer will not be eligible for any additional payday loans.

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