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Hoosiers getting by paycheck to paycheck who are hit with an unexpected expense often leap at the chance to take out a two-week “payday” loan for what seems to be a small fee. But often, they end up chasing that loan with others, and those small fees actually compute to an annual rate of 391 percent. Many discover a bitter truth – that the easy-to-obtain series of loans has only made it harder to climb out of debt.
For years, consumer advocates, veterans groups and social-service organizations have been trying unsuccessfully to get the Indiana legislature to do something about payday lending. A surprise amendment that popped up during an Indiana Senate committee hearing last week proposes to do just that – but not in a way that would help protect struggling families from predatory lenders.
Incredibly, Senate Bill 613, authored by Sen. Andy Zay, R-Huntington, and Sen. Mark Messmer, R-Jasper, would vastly expand the high-interest loan system while doing almost nothing about existing payday loan rules. The measure passed out of committee on a hurried party-line vote, and it could come before the full Senate for a vote today, an attempt to give a dubious bill momentum before advocates for the poor have time to effectively react to last week's massive amendment.
Erin Macey of the Indiana Institute for Working Families said she and other members of the coalition fighting the payday loan concept received the 69-page amendment late in the afternoon before Thursday's hearing, and the organization has not had time to thoroughly analyze the measure.
But, the institute wrote in a preliminary analysis, “the bill makes sweeping changes to our consumer lending laws covering home equity loans, car loans, personal installment loans and other consumer credit products that will significantly drive up costs for already-struggling borrowers.” Under SB 613, Macey said, the annual percentage rate for a car loan to a low-credit applicant could be hiked as much as 11 percent.
Besides preserving the current payday-loan system, the institute said, SB 613 would create a six- to 12-month, high-interest, payday-style installment loan similar to one the lending industry failed to get enacted last session as well as a new “small dollar loan” that would carry at least a 99 percent annual rate.
Zay told lawmakers he wrote his bill as an alternative to the usual piecemeal approach to revising lending laws. SB 613's backers say payday loans and the new array of high-interest loans the bill would create offer quick cash to those who need it without driving desperate Hoosiers to pawnshops, back-alley creditors or internet lenders with even higher rates. “This is a way to build credit,” said attorney Brian Burdick, who represents the Consumer Financial Services Association.
But those who work with financially strapped Hoosiers often see a different outcome.
“Folks come to us seeking bankruptcy relief – a death in the family, a sudden job loss, a severe medical issue,” Matthew Gaudin, a staff attorney at the Neighborhood Christian Legal Clinic, told lawmakers during Thursday's hearing. “Many have taken out payday loans before they come to us seeking bankruptcy,” he said. “It often exacerbates the problem. A lot of times it pushes it over the edge and requires a bankruptcy.”
Another witness who hastily rallied to oppose the new measure was Jim Bauerle, a retired U.S. Army brigadier general representing a coalition of veterans groups. Bauerle noted the Department of Defense recommends a 36 percent cap on annual percentage rates “for all types of consumer lending – including all fees.” Senate Bill 104, which would impose that cap on all loans in Indiana, also was reported out of committee last week but is believed to have little chance of passage.
Zay's idea of a comprehensive review and revision of Indiana's lending laws is something opponents of the payday-lending concept could support. But it would require far more thought and discussion than one two-hour committee hearing.
“The appropriate thing for this committee to do would be to reject this bill but establish a summer study committee where you can thoroughly evaluate the things so that the public could hear,” Bauerle said.
If you believe ramrodding this bill expanding payday-loan options is the wrong answer, it's urgent you contact your legislators today.