The Office of Financial and Insurance Services (OFIS) will implement a new system to make payday lenders comply with law and better protect consumers, OFIS Commissioner Linda A. Watters today announced.

Last year, Governor Jennifer Granholm signed legislation that regulates the deferred presentment, or payday lending, industry in Michigan, which included a variety of consumer protections. The legislation included a state-controlled database designed to provide effective real-time enforcement and set limitations on the transaction dollar amount, the fees charged to consumers, and the number of open transactions a consumer may have at any one time. Licensees will perform internet-based checks on the secure database to verify customer eligibility. The Michigan law protects consumer privacy by imposing strict limitations on the use of the data by anyone accessing the database.

Veritec Solutions LLC was selected to implement the database system and manage the operation of this program statewide. Veritec is a nationally recognized company that has successfully managed this type of statewide program, Watters said.

“This database is a key component of our strategy to impose a comprehensive regulatory program that is both efficient and effective,” Watters said. “Harnessing the power of technology, every consumer transaction will be run through this database, providing an umbrella of protection to consumers, regulatory efficiency to OFIS, and ease of use to licensees.”

All Michigan payday lenders were required to be licensed by June 1, 2006. OFIS has issued  573 licenses to deferred presentment providers to date. Access to licensee information may be found at www.michigan.gov/ofis under “Who We Regulate”. Each deferred presentment provider is required to be trained by Veritec on how to use the database system for all transactions.
Licensees and licensee applicants can contact Veritec at 1 (866) 643-7701 or via email at Mail@Veritecs.com and sign up for database training.  Initial training is scheduled for Detroit and Grand Rapids beginning June 26, 2006.
The law required OFIS to implement the statewide common database no later than December 31, 2006, but the database will be fully operational by July 31, according to Watters.
“We’re pleased to be so far ahead of the deadline for launching this system because it means we will be able to serve and protect consumers that much sooner,” Watters said.
The deferred presentment licensing and statewide common database timeline is as follows:

• March 31, 2006:  Complete, acceptable applications to be received from deferred presentment companies.  If these applications were accepted and not returned by OFIS, then the companies may continue to operate after June 1, 2006.
• June 1, 2006: First day of required licensure under the Act.  Companies may not continue to operate beyond June 1, 2006 unless they’ve received a license from OFIS, or an application was received and accepted by OFIS prior to April 1, 2006.
• June 1, 2006: All deferred presentment transactions beginning June 1, 2006 are required to be kept and maintained in a format that will be uploaded into the statewide common database.
• June 6, 2006: The Michigan Administrative Board approved Veritec as the approved vendor to maintain and operate the statewide common database.
• June 26, 2006: The pilot program for the statewide common database will be launched for applicant and licensee use. Period for free use of the database begins.
• July 31, 2006: Target date for the statewide common database to be fully operational for deferred provider licensee use. 
• August 31, 2006: All transactions entered into on or after June 1, 2006 must be uploaded into the statewide common database.
• August 31, 2006: Free use period ends. Target date after which database verification fees may be charged by licensees. 

In addition to the database, the law prescribes the conduct of deferred presentment service providers in a number of ways, including specific fee maximums for each loan on a reverse sliding scale; limiting the number of loans that a consumer can have at one time; imposing a maximum transaction amount of $600; providing a method for customers to seek restitution in case of a violation; and giving consumers the ability to voluntarily enter into a payment plan.

Personal identifying customer information contained in the database is confidential, and is not a matter of public record, is not subject to discovery, subpoena, or other compulsory process except in a civil action allowed under the Deferred Presentment Service Transactions Act, and is not to be disclosed to anyone but the Commissioner.

For more information on Deferred Presentment Service Transactions regulation, visit http://www.legislature.mi.gov/documents/mcl/pdf/mcl-act-244-of-2005.pdf .

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DEFERRED PRESENTMENT SERVICE TRANSACTION REGULATION

Frequently Asked Questions

What are “Deferred Presentment Service Providers”?

A deferred presentment service provider, commonly known as a Payday Lender, is a person engaged in the service of accepting a check from a customer, and deferring presentation (“cashing”) of the check until a future agreed upon date for a fee.

Deferred presentment service providers offer a service to individuals who find themselves short of funds between paychecks - convenient short-term access to cash that they cannot or choose not to get from other sources.  The process is quite simple and increasingly popular throughout the state.

How does the business work?

Here’s how the business works: Let’s say you need $100. You write a check to a deferred presentment service provider for $115.00.  In return, you receive $100 when you write the check and an agreement that your check will be held for a period, between 7 or 31 days before it will be cashed. At the end of the specified agreement period, the deferred presentment service provider will present (cash) the consumer’s check.  In this example, the consumer paid a $15.00 fee to receive $100.00.

What are some of the specific regulations contained in the new law?

• Under the new Deferred Presentment Service Transactions law, deferred presentment service providers are licensed and regulated by OFIS and will need a separate license for each location where deferred presentment services are conducted.
• Deferred presentment service providers are required to demonstrate at application and maintain net worth of at least $50,000 for each licensed location up to a maximum of $250,000.
• Deferred presentment service providers are required to provide a $50,000 surety bond to the Commissioner of OFIS.  However, if 1 person owns 20% or more of the ownership interest in 2 or more licensees, the group of licensees having that common ownership is only obligated to furnish one $50,000.00 surety bond. 
• Deferred presentment service providers are required to demonstrate to the Commissioner of OFIS that they have the financial responsibility, financial condition, business experience, character, and general fitness to reasonably warrant a belief that business will be conducted lawfully and fairly.
• An individual may have a total of two transactions open at any one time, but not more than one with the same d eferred presentment service provider.
• The amount of each transaction will be limited to $600.  Therefore, an individual may have two open transactions with each having an initial balance amount of $600 plus allowable fees.              
• The amount of fees that can be charged per transaction is restricted (see next question).
• Deferred presentment service providers are required to determine eligibility of a customer before entering into a transaction. Eligibility can be determined by using the statewide common database.

What are the fees deferred presentment service providers may charge?

Specific fee maximums are set for each deferred presentment transaction on a sliding scale, and no other interest or fees can be charged.  The charges allowable are as follows:

• For the first $100, the fee may be up to 15%.

            (example: $50 transaction will result in a $7.50 fee)

• For the second $100, the fee may be up to 14%.

            (example: $150 transaction will result in a $22.00 fee)

• For the third $100, the fee may be up to 13%.

            (example: $250 transaction will result in a $35.50 fee)

• For the fourth $100, the fee may be up to 12%.

            (example: $350 transaction will result in a $48.00 fee)

• For the fifth $100, the fee may be up to 11%.

            (example: $450 transaction will result in a $59.50 fee)

• For the sixth $100, the fee may be up to 11%.

            (example: $550 transaction will result in a $70.50 fee)

• For a $600 transaction, the consumer would be charged an amount of $76.
• In calculating the transaction fee, the deferred presentment service provider may not round up for any fee.
• The deferred presentment service provider may also charge the consumer a verification fee beginning September 1, 2006.  The verification fee approved by the Commissioner is $0.45 per transaction.
• The deferred presentment service provider may charge the consumer an initial fee of $15 for the administration of a payment plan.
• The deferred presentment service provider may charge the consumer a maximum amount of $25 for a returned check.

What other protections are built into the law for consumers?

The law also gives customers a method for claiming restitution in the case of a violation. The customer may, within a limited time, present evidence of a violation to the licensee and the licensee must determine if it agrees with the customer. If the licensee agrees, it must return the check and fees and pay restitution equal to five times the amount of the fee charged, but not less than $15 or more than the face amount of the check. Receiving restitution bars the customer from seeking any further redress for that violation. If the licensee does not agree, it may present the check for payment or enter the check into the check-clearing process on or after the maturity date. If the customer still believes that the licensee violated the law, he or she may file a written complaint including supporting documents or other evidence with OFIS. If, after investigating the customer’s complaint, the Commissioner determines that the licensee violated the act, the Commissioner may order the licensee to make restitution to the customer in an amount equal to three times what the licensee would have been responsible for paying if it had agreed with the customer and provided restitution at the first step, but not less than $45 or more than three times the full amount of the check. Payment of restitution under these circumstances does not bar further action by the Commissioner under the act.

Additionally, customers have a grace period, and can rescind contracts by the close of the next business day; and could redeem a check by paying the face amount of the check at any time before the maturity date stated in the agreement.  Licensees are prohibited from seeking criminal penalties against a customer because the customer entered into an agreement or his or her check is dishonored, from presenting a check for payment before the maturity date, and from including in a deferred presentment services agreement a confession of judgment.  Customers may file complaints with OFIS.

Finally, any customer who has entered into eight transactions in any 12-month period could voluntarily enter into a repayment plan for an additional fee of $15 (which increases according to inflation after 2011).  The money owed would then be paid back in three equal installments, and the customer would not be eligible to enter into any new transactions during the period of the repayment plan.

Who pays for the database?

Customers will pay a verification fee of $.45 per transaction, which will pay for the operation of the statewide database.