Tuesday, December 26, 2017 1:00 am
Effort to limit payday lending welcome
A Fort Wayne woman – let's call her Beth – got caught up in the vicious cycle of “payday loans” when her husband lost his job after being diagnosed with a long-term illness. The couple, who had just bought a house, could no longer cope with unexpected expenses.
So Beth began taking out two-week loans to make ends meet. “It was like an easy, quick fix,” she said. But she quickly found herself in the kind of trap that consumer advocates say exploits many borrowers, taking out new loans to pay off previous loans and paying exorbitant interest rates along the way. As a new legislative session looms and another attempt to expand payday lending is expected, she agreed to speak about her experience anonymously to avoid embarrassment in her current job.
Beth, who used payday loans and other kinds of short-term loans for about a decade, said getting that quick money allowed her to say, “OK, I can breathe for a minute.” She usually had enough to pay her major household bills, but she used the loans to buy gasoline and groceries and have lunch money for her children. But she found that “once you get into them, it's harder to get out.
“I was chasing around the same money that I didn't have in the first place,” she said. “It does not help you over the long term.”
Today Beth's family has a conventional loan through Brightpoint, and she says she will never go back to a payday lender.
Steve Hoffman, Brightpoint's president and CEO, says about a fifth of those served by his nonprofit social-service agency have used payday lending in the past.
“Of those, 90 percent wish they had never done it,” he said during a recent conversation he and two other consumer advocates had with our editorial board.
Lots of Hoosiers may need short-term help, said Erin Macey, policy analyst for the Indiana Institute for Working Families. “Our data suggest 1 in 3 Hoosiers is struggling to afford what they need to be self-sufficient,” she said.
Those who take a two-week loan from a payday lender often don't realize the annual percentage rate of that loan may be as high as 391 percent. Borrowers also may not have the money in two weeks to pay off that first loan, something lenders count on, consumer advocates say.
“They know at the end of those two weeks, that person's going to need to renew the loan,” Hoffman said. “They can't take out two loans at once. But they can pay off the old one, and start a new one. So (the person borrowing) can hold back on rent, or what have you, to keep that cycle going.”
Such exorbitant rates are not allowed in all states. But in some, including Indiana, the push has been to extend the scope of payday lending. Last legislative session, a bill that died in committee would have allowed payday operations to offer loans between $605 and $2,500 for up to two years at an annual percentage rate of 240, which could have left families paying as much as $9,600 interest on a $2,500 loan. A similar bill had failed the year before. But consumer advocates expect the payday-loan forces to be back with another attempt when the legislature reconvenes next month.
“When we go to the Statehouse, it seems like there's a real disconnect in that legislators are believing that people really want this as a consumer-choice issue,” said Kathleen Lara of Prosperity Indiana. “Really, when you talk to consumers, they don't want the choice of this high an APR – they don't want this to be their option.”
Other options that consumer groups recommend include applying for conventional loans or going to family, friends or social-service agencies for help at the beginning of a problem, instead of after chasing a series of costly payday loans.
This session, instead of just playing defense, opponents of exorbitant lending practices are pushing back. According to Macey, a Republican legislator has agreed to sponsor a measure that would cap interest rates at a far more reasonable 36 percent.
It may be unrealistic to hope that such a measure could get through next year's short session. But the bill should at least spark an important conversation. And it's not too much to hope lawmakers at least don't expand a practice that hurts Hoosier families when they are most in need of help.