Has the Michigan Legislature mistakenly hurt consumers while attempting to protect them?
Payday Loan Companies (“PLCs”) have a place in the financial food chain in our society. While they are akin to bottom feeders due to the high interest rates that they extort from necessitous borrowers, the fact remains that they are willing to take someone’s post dated check and give them cash that a bank or most other lenders, will not.
Michigan has an excellent Bad Check statute. Someone who writes a bad check can be sued for three times the amount of the bad check plus $250 plus $150s for attorneys’ fees. So, for example, if someone writes a bad check for $100, they can be sued for $700. Pretty amazing, huh? The Michigan Legislature takes bad checks quite seriously…except if you are a PLC.
In 2005, the Michigan Legislature passed a statute called the Deferred Presentment Services Transaction Act (“DPSTA”). This statute prohibits PLCs from using Michigan’s Bad Check Statute. The DPSTA caps PLCs’ damages on bad checks to $25.00. But why? I don’t know. But the PLC’s trade group did not take this lying down. They filed a lawsuit, which they recently lost, against the State of Michigan. They tried to convince a court that the DPSTA was unconstitutional and should be ruled invalid. The court refused. For whom was this victory?
Score 1 for consumers, right? I am not convinced that this is true. Remember, the people that use the services of the PLCs are typically not people who can cash a check anywhere else. Usually, they have an immediate need for cash. If a Payday Lender is not going to be protected under the law to the same extent as anyone else, why should they remain in this business? After all, if the debtor cashed that same check at a party store and bounced it, the party store can sue the debtor under the Bad Check statute. So what’s the solution?
Some PLCs have gotten wise and have incorporated under the tribal laws of some American Indians. Michigan is fortunate to have several tribes in this state. Currently, this scheme is before the Colorado Supreme Court. We will eventually see how that court rules. In the mean time, I expect that some if not many, PLCs to close their doors. Why suffer the headache of accepting checks that have a higher than average incidents of being declined by the drawee’s bank. Where then, is a necessitous borrower to get some money immediately? I am not convinced that the Legislature thought this through before penalizing the PLC industry.