Michigan Appeals Court upholds cap on fees that payday lenders can charge for bounced checks

Mich. court upholds cap on payday loan bounce fees

DETROIT — Payday loan companies can no longer charge borrowers triple damages plus $250 if their checks bounce, the Michigan Court of Appeals said Friday, overturning a lower court that ruled in favor of a lenders group.

The court’s ruling reverses an Oakland County court decision favoring payday loan issuers and upholds a state order to enforce a 2005 law designed to rein in practices by an industry used mainly by low-pay workers.

“This decision is a big win for the little guy,” said Jason Moon, spokesman for the state Office of Financial and Insurance Regulation. “Our agency believed Michigan law was clear from the beginning, payday loan companies can only charge the state’s consumers $25 for nonsufficient funds.”

Payday lenders in Michigan can charge up to 15 percent on the first $100 of a loan, which is generally made for two weeks but can be for up to 31 days.

An older Michigan law says in some cases, businesses or individuals receiving bad checks can collect triple damages and court costs of up to $250.

In 2005, the Michigan Legislature capped the amount in the case of payday loans to the check’s face value plus $25. The law also set a sliding scale for the interest that can be charged, from 15 percent on loans of up to $100 to 11 percent of loans of $400 to $600.

At the time, state Sen. Martha Scott, D-Highland Park, a supporter of the bill, said payday loan companies “encourage our most vulnerable citizens to dig themselves deeper into debt, which is precisely what is happening for most that are using this service.”

In April 2008, the Office of Financial and Insurance Regulation warned payday loan providers that they face fines of $5,000 to $50,000 each time they charge more than $25 for a returned check.

The purpose is “to stop current practices by some licensees and to prevent the spread of these unlawful actions,” agency Commissioner Ken Ross wrote.

The Michigan Deferred Presentment Services Association challenged the order, and an Oakland County court agreed.

Phone and e-mail messages were left Friday for a lawyer representing the association, Louis Porter.