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MIRS Weekly Report

Michigan News And Capitol Report, Week Ending Friday, March 15th, 2024

 

36 Percent Payday Loan Cap Approved By Senate

Payday loan operators in Michigan could not charge customers more than a 36 percent annual interest rate under legislation the Senate approved Thursday, 24-13.

The legislation, similar to a ballot initiative attempted in 2022, is being pushed to prevent low-income, marginalized communities from being driven into a cycle of debt, while being opposed by an industry that claims the restriction would drive them from the state, preventing people from accessing the service at all. 

"These are the kind of bills that drove me to run for public office," said Senate Appropriations Chair Sarah Anthony (D-Lansing), the sponsor of SB 632. “ Whether we're talking about folks who live in rural Michigan, in our inner cities . . . they are disproportionately impacted by predatory loans.”

According to an August 2018 report gathered by the Center for Responsible Lending – a North Carolina advocacy group, honing in on "financial fairness" – annual percentage rates (APRs) charged on payday loans have exceeded 340 percent. The organization wrote that the APR charges cost consumers in Michigan more than $513 million over a five-year period prior to its report. 

Meanwhile, the publication spotlighted that more than two-thirds of payday stores in Michigan were linked to out-of-state headquarters. 

The 340 percent number comes from the sequence of payday loans routinely being taken out. For example, data from the federal Consumer Financial Protection Bureau (CFPB), which was relayed in the center's report, has indicated that 70 percent of payday loans in Michigan specifically "are taken out on the same day as a previous loan is repaid." 

During the vote on Anthony's SB 632, Sens. Thomas Albert (R-Lowell), John Damoose (R-Harbor Springs), Mark Huizenga (R-Walker) and Ed McBroom (R-Waucedah Twp.) joined Democrats in supporting the legislation. Sen. Jim Runestad (R-White Lake) did not vote on the bill, although he was in attendance during Thursday's Senate session. 

Sen. Lana Theis (R-Brighton) attempted to amend the legislation, offering a proposal that would repeal the 36 percent APR cap if 5,000 or fewer payday loan transactions take place in Michigan within six months following the bill's enactment. 

"The thought behind this is that the number would definitely prove that these products, the short-term loans, are no longer being regulated. The need for those (doesn't) go away. People will find a different solution," Theis said before her amendment failed. "This proves these people went to an unregulated market, one that's even worse than what the payday lending market currently is." 

She said the current financial situation in the country, whether it involves car repairs or any other urgent needs, is not getting less expensive. 

Lobbyist John Rabenold of Check 'n Go – a storefront and online payday loan provider with nearly 1,000 locations in the United States – informed the Senate Finance, Insurance and Consumer Protection Committee on March 6 that the cap would result in a 90 percent reduction in revenue for the business he represents.

Essentially, he said SB 632 's end result would be "we would be unable to offer product . . . as a for-profit business," explaining that similar legislation being enacted in other states has driven lenders out. In particular, he explained Check 'n Go closed shops – and eliminated the jobs associated with their small business contracts – in Illinois and New Mexico. 

One October 2019 report affiliated with the Federal Reserve Bank of San Francisco noted payday loan stores were often located on the outskirts of military bases, until the U.S. Department of Defense fine-tuned its rules in 2015, further eliminating loopholes to ensure active duty military members and their dependents are not charged more than 36 percent APR on payday loans.

Then-CFPB Assistant Director Holly Petraeus of the Office of Servicemember Affairs said when she drove down a strip outside a military installation, she counted 20 "fast-cash lenders" located within less than four miles of each other, describing it as "not a convenience," but a problem. 

When asked by MIRS if the bill's goal is to tell payday lenders to "peace out" in Michigan, as they reportedly did around military bases, Anthony said she didn't get into her business to shut down organizations and companies, but wants to ensure when any Michigander walks out the door, they're not seeing "predatory practices" and "blight." 

"We've (now seen) 20 other states across the country (that) have reigned in these interest fees, and what we've seen is that, one: it opens up the market for more reasonable short-term lending solutions," Anthony said. "If the business model is predicated upon surviving off 370 percent interest, that's a huge problem. So I'm not concerned with…keeping industries open that prey on working families." 

The Senate also unanimously approved HB 4343, requiring the state's Department of Insurance and Financial Services (DIFS) to submit a yearly report on payday loan transactions, licensees and complaints to the Senate and House committees focusing on banking and financial services. 

The House bill was updated with a Senate substitute instructing DIFS to submit a report to legislators each year for the legislation's seven-year lifespan.

 

MPSC Could Lose Gas Safety Oversight Scripps Warns

Michigan’s Public Service Commission (MPSC) could lose its ability to operate a state-level gas safety inspection program, after already losing enforcement oversight over underground natural gas storage, said MPSC Chair Dan Scripps.  

Scripps Wednesday testified on Sen. Sean McCann (D-Kalamazoo)’s SB 366, which passed out of the Senate in late February, and would increase maximum fines that the MPSC could impose for a violation of gas safety standards, from $10,000 for a single violation and $500,000 for a series to $200,000 for each violation and $2.5 million for a series.

The bill also changes the fine from a civil penalty to an administrative fine, and makes annual adjustments for inflation moving forward. 

McCann’s bill passed the Senate, 32-5, and wasn’t opposed during House committee testimony Wednesday, though some Republican members had questions about where the dollars from fines currently go (the General Fund) and if they will be earmarked. 

Scripps said if the bill doesn’t also move through the House, the MPSC could be at risk of losing oversight over the pipeline portion of its safety inspection program, due to a tentative agreement with the federal government. 

Currently, the MPSC has an agreement with the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHSMA) to regulate gas safety standards. 

In exchange, Scripps said the state must undergo annual audits to ensure the MPSC is meeting federal standards, which historically it’s done very well.

But the MPSC has continued to lose points for being out of compliance with federal penalties set by PHSMA, which as of April 2017 were set at a maximum $209,002 for a single violation and up to $2.09 million for a series. 

Scripps said being out of compliance can impact funding the MPSC receives for state oversight, but can “also impact whether we’re allowed to maintain our enforcement agreement.” 

This has been a concern for almost a decade, he said, but as PHSMA steps up its efforts to bring states into compliance with federal standards, the MPSC has been hit with more reduced federal grants, threats of Congressional hearings, which he said were only sidetracked because of the COVID-19 pandemic and threats to revoke enforcement authority. 

And these aren’t empty threats, he said. A lack of compliance has already resulted in the MPSC losing authority of its state enforcement authority for underground natural gas storage, though it has so far kept its authority over natural gas pipelines. 

“As a result, it's no longer the state officials who are inspecting and enforcing underground gas storage safety standards,” he said. “That has reverted back to the federal government,” which Scripps said may not fully understand Michigan’s unique geography and geology. 

“I know there are some of you who may not like the increase,” he said, “... and I totally get that,” but he added that without the change, companies would be “dealing with Washington instead.” 

David Chislea, director of the MPSC’s Gas Safety and Operations Division, highlighted Michigan’s sixth-largest natural gas system in the nation, serving over 3 million homes and businesses, along with the largest gas storage system by working volume in the country. 

Chelsea said in 2023, the division issued 92 violations and 11 penalties totaling $55,500. 

McCann said those fines are one of the key components to the MPSC’s ability to enforce safety standards, but in many cases, the maximum fines that can be imposed currently are lower than the damages caused. 

He referenced one 2013 incident where the MPSC imposed a fine of $340,000 on a utility for a violation, but the incident actually caused over $770,000 in damages and a fatality. 

McCann said 28 other states have enacted legislation matching federal fine levels, while Idaho and Mississippi are the only states with fine maximums lower than Michigan’s. 

 

Bottle Returns Would Be Available 15 Hours Per Day Under Bill

Retailers would be required to accept bottle deposit returns between 8 a.m. and 11 p.m. if they are open, or during their operating hours if they are shorter, under Rep. Julie Rogers (D-Kalamazoo)’s HB 4521 which received testimony in the House Regulatory Reform Committee Tuesday. 

Currently, there is no minimum time period when a retailer must accept bottle returns. Rogers said retailers serving economically-disadvantaged communities have not lived up to “their responsibility to support bottle returns.”

Some retailers have infrequent or short periods for bottle returns, restricting days of the week or limiting the deposit refund they would issue. In one example, Rogers said a store in her district limited the refund amount to $2 per day.

“I said, ‘So I can go over there, and buy two 24-packs, drink the soda in the parking lot and bring those very soda cans back and you will refuse to accept my return?’ The manager said yes,” Rogers said.

Reps. Jimmie Wilson Jr. (D-Ypsilanti) and Stephanie Young (D-Detroit) suggested scaling back the time frame so that store employees wouldn’t be stuck past closing time if someone brought in $25 worth of cans to process right before the store’s close.

The deposit program, pickup and processing services are run by and paid for by the soft drink and beer distributors, and Michigan’s program has been considered the most efficient deposit system in the country until recently, said Tom Emmerich, chief operating officer of Schupan and Sons Inc, testifying in support of the bill.

Michigan’s return rate has consistently been greater than or near 90% prior to the COVID-19 pandemic, Emmerich said.

Susan Collins, president of the Container Recycling Institute, also testified in support of the bill. She said the bill would increase consumer convenience and therefore participation. 

Jerry Griffin, vice president of government affairs for the Midwest Independent Retailers Association testified in opposition of the bill, stating that for the association's membership, which is mainly small businesses, this law would require employees to hand count used returnables if they don’t have the “reverse vending machines.”

Griffin said even if those small businesses don’t place restrictions on when returns are accepted, they would have to schedule additional employees during periods that they have determined the labor needs are less in case an influx of people come in. 

 

Environmentalists Want Regulated Data Centers

As a Senate committee moves forward in adopting legislation to extend sales and use tax exemptions to Michigan-placed data centers, environmentalists are awaiting guardrails to monitor data centers' water and energy consumption. 

According to an October 2023 report by the ING Group, a multinational financial services corporation, a mid-sized data center in the United States can use about 300,000 gallons of water daily to cool its equipment.

When it comes to energy, the C&C Technology Group – an agency founded in 1985 to represent multi-technology data center manufacturers – has relayed findings that data centers based in the U.S. utilized more than 90 billion kilowatt-hours of electricity in 2017. In an article, the agency publishes "that much energy would require 34 massive coal-powered plants to generate at least 500 megawatts each to meet the power demands of said data centers." 

In Wednesday's Senate Finance, Insurance and Consumer Protection Committee, the bills providing the data center-focused tax incentives – SB 237, SB 238, HB 4905 and HB 4906 – were each approved 5-1. Sen. Lana Theis (R-Brighton) voted against the legislation and Sen. Rosemary Bayer (D-Keego Harbor) abstained on all the bills. 

"Data centers are some of the biggest users of energy and water across the country, and given that we are in a transition to renewable energy, and climate change is putting more and more strain on our water resources, we think it's imperative that we manage them as conservatively as possible as we transition, functionally, the whole system," Christy McGillivray– the legislative and political director for the Sierra Club Michigan Chapter – told MIRS.

She spotlighted how any stresses on resources have to be accounted for, and "we should absolutely not be giving out massive subsidies to some of the largest corporations in the world without strings attached to them." 

Groups like the Sierra Club Michigan Chapter and the Michigan Environmental Council are not opposed to the legislative package, but are pushing for some regulations to be a part of what the Legislature gives its final approval to. 

For example, in a letter submitted to the Senate Finance, Insurance and Consumer Protection Committee Wednesday afternoon, the Michigan Environmental Council called for data centers to acquire their own renewable energy and storage in order to qualify for tax exemptions, and to seek to minimize or eliminate the use of fossil fuel-powered backup generation facilities. 

The group also suggested that a data center, in order to qualify for exemptions, should set up a plan to use the most energy – actively shifting their "load" – to off-peak times for electricity consumption. 

McGillivray also highlighted her organization's desire to see data centers report how much water they are using and to be provided with water-based siting considerations to come into account. Moreover, she described "guardrails" for scenarios where an area where a data center is located could be affected by a drought or an ecosystem is negatively impacted by the center's presence. 

"There needs to be accounting for like, if they are using groundwater, are they dramatically dropping (a) water table and impacting agriculture in the area?" McGillivray asked rhetorically. "We're not saying 'don't use water' or 'don't have data centers . . .' (We're saying) we have to know what the impacts are. We have to be able to account for them. We have to be able to require conservation, and we have to have some say over what's happening as they're operating." 

The legislation which moved to the Senate floor Wednesday would extend the pre-existing sales and use tax exemptions available to certain data center developments and operations from its Dec. 31, 2035 sunset to Dec. 31, 2050. The present-day exemptions apply exclusively to "colocation" data centers, which are community-based structures with multiple tenants operating servers within one facility. 

Furthermore, the bills deploy a new proposal for enterprise data centers that are owned and occupied by a single enterprise. 

Under the House bills, an enterprise data center development with an aggregate capital investment of at least $250 million into the state could access exemptions until after 2050, and could access exemptions until after 2065 if they are building off of a former electric power plant or brownfield redevelopment area. 

But, according to Senate Finance, Insurance and Consumer Protection Chair Mary Cavanagh (D-Redford Twp.), the Senate bills – SB 237 and SB 238 – have more of a focus on job creation, requiring eligible enterprise data centers to deliver at least 30 new jobs that will be maintained throughout the period of exemptions. Through the Senate bills, 50 percent of new jobs must demand a post-high school degree in science, technology, engineering or mathematics (STEM), or a license or certificate under the Michigan's Skilled Trades Regulation Act. 

Following the adoption of two substitutes Wednesday, both the House and Senate bills will mandate jobs offering 150 percent of the region's medium income. 

Cavanagh told MIRS she thinks the package at-hand fits into the economic development equation of us "trying to utilize all the tools that we can in Michigan, and as we see more (artificial intelligence) and more social media . . . and even Google to Facebook needing these data centers, we are as a state not getting that kind of business." 

"As we heard in testimony, currently they're only going to states that have this sort of exemption or this sort of assistance," Cavanagh said. "My main objective when we look into economic development: what is the community benefit? What is the wage benefit to help the people that are being hired, (are they being) pulled out of poverty? And, making sure we are advancing in our state rather than just kind of staying at the status quo." 

Prior to voting on the legislation, she said the bills are not the final product, and they will continue to be worked on for potential improvements.