Consumer Debt in Michigan

    Michigan residents have some serious underlying issues when it comes to their finances. Problem areas are not necessarily apparent on first glance, since Michiganders manage to keep debt levels lower than the national average. On closer inspection, one of the main reasons is that many Michiganders rely on bankruptcy to clear their debts, reducing the state’s average debt levels.

    High unemployment rates for the last several years have significantly affected residents’ abilities to afford everyday expenses and repay loans. This results in their need for credit card debt, mortgages, auto loans and student loans. Financial problems have held Michiganders’ credit scores below the national average.

    The Michigan government strives to help its residents with financial matters. It has an array of laws in place to help consumers avoid unfair treatment and keep their finances safe.

    Unemployment in Michigan

    Michigan has had some of the highest unemployment numbers in the country in recent years. The rate peaked at 14.2 percent unemployed in August 2009, which was twice as high as the state’s rate just 18 months earlier. It was also the highest recorded rate in any state since 1990, when state-specific data collection began.

    Detroit was hit the hardest. The U.S. Bureau of Labor Statistics reported that in mid-2009, nearly 30 percent of the city’s workforce was unemployed. Some experts speculated that this was a gross underestimate as it did not include those individuals who gave up on looking for work. Some estimated that close to half of Detroit’s eligible workforce was unemployed.

    The Michigan job force was already suffering before the Great Recession, and the recession only acted to amplify the problems of the state’s diminishing manufacturing sector.

    Since 2009, Michigan’s unemployment rates have somewhat recovered. In July 2012, the rate was 9.0 percent, just above the national rate of 8.3 percent. Experts are quick to note, however, that the apparent improvement is not exactly a reflection of the job market. While some people have been able to return to work, others have moved out of the state to look for work elsewhere and still more have given up on looking for jobs altogether.

    Such high unemployment rates logically affect residents’ dependence on debt. Individuals commonly fall back on credit cards and other debts to cover expenses they cannot afford, and Michigan seems to be no exception.

    Consumer Debt in Michigan

    The average Michigander has significantly less debt than the average American. With only $36,120 in debt per capita, Michiganders carry 24 percent less debt than consumers nationwide. Residents have lower debts in part because of higher-than-average bankruptcy rates. The high level of bankruptcies alleviates outstanding debt for some of the most indebted citizens, lowering the state average.

    Still, more than $36,000 of debt is enough to make any American worried about money. Michiganders’ debt comes in the form of mortgages, student loans, credit cards and auto loans.

    Credit Card Debt

    Michiganders are not as dependent on their credit cards as most Americans. Among Michigan consumers who have credit card debt, the average debt level in early 2012 was $5,724. This is about 6 percent lower than the national average of $6,069.

    Counting all consumers in the state, regardless of whether they hold credit card debt, the average debt was $1,470 per capita. This is 40 percent lower than the national average of $2,450 in credit card debt. The disparity between per-debtor and per-consumer debt levels signifies that, while many Michiganders rely on their credit cards, there are many more who manage to pay their balances in full each month or who have settled their debts.

    Mortgage Debt

    Mortgage debt in the state shows a similar pattern. The average mortgage in the state was $121,076, a full 28 percent lower than the nationwide average of $168,000. And among all consumers in the state, per-capita mortgage debt was $23,870. This was 30 percent lower than the average across the country.

    In addition to taking on more reasonably sized mortgages, Michiganders are also more responsible when it comes to paying their mortgages. At the peak of financial problems in late 2009, 7.81 percent of mortgage debt in the state was at least 90 days late. This was still lower than the national rate, which peaked in early 2010 at 8.89 percent delinquent.

    Since then, Michigan homeowners have been on the road to recovery. By June 2012, only 3.68 percent of Michiganders’ mortgage debt was delinquent. This was in sharp contrast to the national delinquency rate of 6.33 percent.

    Part of the decrease was a result of high foreclosure rates. From 2009 through 2011, 2.56 percent of Michigan homes were foreclosed upon, compared to 2.11 percent nationally.

    Student Loan Debt

    Of those Michiganders with outstanding student loan debt, the average owed is $23,033. This is lower than the national average of $25,250. These numbers are likely to rise, since studies show tuition inflation rates are twice has high as general inflation. The trend makes it less likely each year that the average family or student will be able to take on the financial burden of college.

    Auto Loan Debt

    Some Michigan residents also hold auto loans, though this type of debt isn’t as pervasive as others. Michiganders with auto loans owe an average of $13,268. Counting all Michigan consumers, however, the per-capita average is only $2,910. The large difference in averages suggests that most Michiganders do not have outstanding auto loans.

    Consolidating Debt

    If you want to avoid bankruptcy, a debt consolidation loan could be the tool that makes it easier for you to get out of debt. The laws in Michigan allow you to use your home as equity for debt consolidation loan. Be careful with this choice because defaulting on the loan could mean losing your home.

    Bankruptcy

    Bankruptcy rates in Michigan are consistently higher than nationwide rates. Bankruptcy levels peaked nationwide and within the state in 2005. That year, there was one personal bankruptcy filing in Michigan for every 86 adults, meaning 1.2 percent of the population went bankrupt. The same year nationwide, there was one filing for every 115 adults, or 0.87 percent of the population.

    Bankruptcy numbers plummeted nationwide in 2006, largely because everyone who was in financial trouble had already declared bankruptcy a year earlier.  Nationwide, there was just one personal bankruptcy filing for every 394 adults. This represented only 0.25 percent of the population.

    This wasn’t the case for Michigan. Although it experienced a drop in numbers, there was still a bankruptcy per every 232 adults. That means that in 2006, another 0.43 percent of the Michigan population filed bankruptcy.

    From there, the state has followed national trends. Its bankruptcy numbers have crept back up, with levels in the state remaining higher than those across the country.

    Credit Scores in Michigan

    Michiganders’ credit scores average 653, falling just short of the national average of 661. These figures are based on the FICO scoring model, which ranges from the poorest score of 300 to the best score of 850. Because consumers’ debt levels are lower than average, other issues like high bankruptcy rates and frequently late payments are the likely causes of the state’s low credit scores.

    Consumer Fraud and Identity Theft

    Michigan ranks low for consumer fraud, an umbrella category that includes crimes like identity theft, Internet scams and fake debt reduction services. In 2010, there were 274 fraud complaints for every 100,000 residents, ranking the state 35th.

    It ranks much higher for identity theft. The same year, residents experienced 69.6 identity thefts per 100,000 people, ranking Michigan 16th for identity theft.

    Some Michigan cities had even higher rates, especially for fraud.

    When 384 metropolitan areas nationwide were ranked based on their 2010 consumer fraud rates, the following Michigan cities were noteworthy:
    • Allegan ranked sixth, with 607 complaints per 100,000 people.
    • Bay City came in at 17th, with 512 complaints per 100,000 residents.
    • Ann Arbor had 499 fraud complaints for every 100,000 residents, ranking it 22nd overall.

    Although consumer fraud is low in the state as a whole, the crime is prominent in metropolitan areas. Outside those areas, rates are well below the state average.

    When the same 384 cities were ranked based on identity theft rates, Monroe was the only Michigan city to rank in the top 50. It had 117 identity thefts per 100,000 residents and ranked 26th.

    Since the state ranks high overall in identity thefts and has only one city with a particularly high rate, it means the crimes are evenly distributed throughout the state. With the exception of Monroe, no one area has a vastly higher rate than any other area in the state.

    Michigan State Laws on Consumer Debt

    Michigan has numerous laws to protect consumers and help control consumer debt. The laws are fairly comprehensive, going well beyond those of the federal government and providing residents of Michigan a significantly higher level of protection than offered to residents of other states.

    Statute of Limitations

    Michigan has a statute of limitations of six years, which applies to all types of debts. This means that if a debt is more than six years overdue or hasn’t been paid in more than six years, creditors cannot take legal action. Creditors and debt collectors alike lose their right to collect money, whether it is owed on a credit card, one-time loan or other type of debt.

    Collection Practices Act

    The Collection Practices Act is Michigan’s version of the federal Fair Debt Collection Practices Act (FDCPA). As with the FDCPA, the state law prohibits deceptive, inaccurate and untrue statements or acts in an attempt to collect a debt. It also outlaws threats, profanity, attempts to shame debtors, as well as harassing, abusive or oppressive debt collection methods.

    There is one major difference between the Michigan Collection Practices Act and the federal FDCPA: whereas the national law applies only to outside debt collectors – third parties hired by lenders to collect debts on the lenders’ behalf – the state law applies directly to creditors and lenders. This adds another layer of protection for consumers.

    Credit Services Protection Act

    The Credit Services Protection Act regulates credit service organizations, including those that offer lines of credit, services to repair credit history or any related advice.

    The act bans such organizations from the following practices:
    • Charging money before they perform duties for clients.
    • False advertising.
    • Deceptive or fraudulent acts.
    • Failing to perform services within 90 days of contract signing.
    • Removing accurate but negative information from a client’s credit report.
    • Creating a new credit report for a client by using different personal identifying information.

    Unlawful Trade Practices Act

    The Unlawful Trade Practices Act prohibits sellers from presenting themselves as wholesalers or reduced-price retailers if such descriptions are inaccurate. It also prohibits stores from implying they have a connection with U.S. armed forces, as is the case with army surplus stores, unless the connection exists.

    Credit Reform Act

    The Credit Reform Act outlines the types of fees lending institutions are allowed to charge.

    Lenders other than banks and credit unions are allowed to charge the following fees:
    • Processing fee of up to 2 percent to adjust a credit account.
    • Late fee of up to $15 or 5 percent of the required payment, whichever is greater.
    • Fee of up to $25 for a bounced check.
    • Interest fee.

    The act also states that receiving a loan cannot be dependent upon signing up for other financial services, except in certain cases when the lender is a bank or credit union.

    Consumer Protection Act

    The Michigan Consumer Protection Act is the most comprehensive of the state’s consumer protection laws. It bans all unfair, deceptive and unconscionable acts during trade and commerce.

    This includes items such as:
    • Making false or misleading statements in advertising.
    • Taking advantage of a consumer’s disability.
    • Requiring a consumer’s Social Security number before a purchase is complete, unless the information is necessary for a background check or other valid purpose.
    • Printing no more than the last four digits of customers’ account numbers on receipts.

    The act has additional sections regulating gift certificates, vehicle rentals and clothing donation boxes.

    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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