INDIANAPOLIS – Predatory lending; debt traps; criminal loan sharking.
These are just a few phrases used to describe a subprime lending bill moving through the legislature against the wishes of a broad coalition of faith and social service groups.
“The loans allowed in this bill would throw gasoline on the fire,” said Tanya Bell, president of Indiana Black Expo.
“Making loan sharking legal under the guise of offering help is absurd. Senate Bill 613 helps no one but the out-of-state lenders who have come to our Statehouse armed with a deceptive sales pitch.”
The bill barely passed the Senate – 26-23 – and now the House is considering the measure. It's clear there will be changes if it moves forward.
“It doesn't give you a warm and fuzzy feeling to carry the bill, but it's needed,” said Rep. Matt Lehman, R-Berne. “There is nothing between payday lending and a traditional loan. The market is already there. Shouldn't we create something with regulatory boundaries? They are necessary products.”
This year's skirmish is the latest in a multiyear attempt by the lending industry to expand options for those with lower credit scores or none at all.
Right now, state law caps annual percentage rates for loans at 72 percent. Anything above that is considered felony loan sharking. The only exception is payday lending, which allows a very specific two-week loan for up to $605 – at APRs up to 391 percent.
APR covers not only interest but other related fees, such as origination and late fees.
Senate Bill 613 would authorize several new lending products for Hoosiers who can't obtain traditional loans. The new products would have lower rates than payday loans at 391 percent but would last longer and allow higher amounts to be borrowed.
“We can't just will this away. It's too big of a marketplace to just ignore it,” said Sen. Andy Zay, R-Huntington, the author of the bill. “This is a step in the right direction. More reasonable terms.”
And one of the most attractive parts of the new products, he said, is the loans are reportable, allowing Hoosiers who use them to build credit.
One of the proposed products is an unsecured installment loan of between $605 and $1,500, with a six- to 12-month term and up to 192 percent interest rate. The second new option would be a small dollar loan lasting 180 days and longer for up to $4,000 with a maximum APR of 99 percent.
Zay said the bill contains protections, too. For instance, it limits “flipping” of the loans, or renewing them again and again. Also, he said, Hoosiers won't be allowed to stack, or have multiple products at once.
He said payday loans often hurt people because their financial situation hasn't changed in two weeks, while these new loans allow more time for improvements to occur.
Zay said the opposition has chosen to use divisive language and not offer suggestions, even calling those fighting the bill disingenuous. He noted that while regular citizens haven't come to the hearings at the Statehouse to support the bill, thousands of stakeholders have called or written about the measure.
Erin Macey, senior policy analyst for the Indiana Institute for Working Families, said the large coalition would prefer the bill be sent to a study committee. This is especially important, she said, after the Senate prepared a 69-page amendment the night before the last day of hearings and radically changed the measure.
Opponents – including veterans organizations, social service agencies, faith-based entities, and community activists – are still trying to understand all the changes in the complex bill.
Macey said the groups don't like payday loans, either, and allowing Hoosiers to borrow larger amounts means the groups can't help citizens out when they get into trouble. It's one thing to get $200 to cover utility bills and another to seek $1,000 on a bigger loan.
She said the small dollar loan has no limitations on how often it can be flipped and has no income limitations.
“We'd like to take this out of the context of session,” Macey said. “There is no emergency.”
She said part of the bill also changes the definition of loan sharking, allowing for higher rates and fees on all loans – including traditional ones.
“That part is vaguely terrifying to me,” Macey said.
Lehman said his House colleagues have a lot of questions, and he has only asked that a hearing be held – not even that a vote be taken.
He acknowledges some changes that could be made, including eliminating part of the bill that allows lenders to hold a person's car title as collateral. And he said there could be room for negotiation on interest rates.
Lehman also wants to make sure the bill has safeguards, such as an appropriate cooling-off period before taking out new loans.
“We don't want people to get into a spiral of debt,” he said. “I think it's good public policy to put some parameters on those products. This needs another hearing. Let's listen to both sides.”