Payday Lending Bill Makes Practice More Equitable For Borrowers

Editor’s note: The Indiana Catholic Conference learned late last week of the introduction of House Bill 1319, which seeks to expand layday-loan products. The ICC will oppose this bill, and will continue to follow its progress and provide updates as appropriate. This new bill is not connected in any way to Senate Bill 325, the subject of this week’s report from Brigid Curtis Ayer.

Indianapolis—A bill to make payday lending more equitable for borrowers is under consideration at the Indiana General Assembly this year. The Indiana Catholic Conference supports the proposal.

Senate Bill 325, authored by Sen. Greg Walker, R- Columbus, would cap fees and the interest collected on the loan to 36 percent annual percentage rate (APR). Current law allows up to a 391 percent APR. 

Glenn Tebbe, executive director of the Indiana Catholic Conference, says Senate Bill 325 addresses the unjust interest charged by lenders in the payday-lending industry. “Current law and practice often puts persons and families into a debt trap by taking advantage of their circumstances,” said Tebbe. “Usury and exploitation of people violates the Seventh Commandment. Lending practices that, intentionally or unintentionally, take unfair advantage of one's desperate circumstances are unjust.”

Walker, who is an accountant by profession, said the research he’s done on this issue is interesting; and it lends support to the idea that Indiana should address it. He said the effect on the customer of the payday loan would be minimal if the borrower was a one-time-a-year customer. The customers who habitually use payday loans may be less aware of the impact these high rates impose on them than the average consumer.

Walker added that, when looking at payday loans on a state by state basis, those states that cap the rate at 36 percent cause most of the payday-lender vendors to flee the marketplace. This is because payday lenders need very high rates of return to operate.  Walker said the financial impact of the loan on the borrower cannot necessarily be measured by the traditional stresses like a bankruptcy, losing a home or the ability to meet other debt obligations.

 “The reason is because the individuals who turn to the payday loan on a habitual level are already maxed-out on the credit card,” said Walker. “They are already struggling to meet the weekly and monthly obligations that they have. And in some cases, there is really nothing to file bankruptcy on.

“There is a difference between interest and usury,” said Walker. “It might be hard for some to draw a bright line between the two. But I draw it at 391 percent.” Walker also points to alternatives to these products saying many non-profit, and community development groups are working to step in and help fill the gap for families in financial crisis.

As for its status, Walker said he is working with the committee chair to get the payday-lending bill a hearing, but said nothing definite is scheduled. “What I hope to accomplish is to at least have the conversation. I think it’s an important issue to talk about and raise awareness that there are better alternatives for people in financial crisis than obtaining a high interest, short-term loan.”

A recent report issued by the Boston-based National Consumer Law Center shows 15 states and the District of Columbia have capped payday loans at 36 percent.

In a poll released this month, 80 percent of Hoosiers respondents favored more regulation on payday loans. Bellwether Research and Consulting, a polling firm in Alexandria, Va., conducted the poll and surveyed 600 registered voters.

Walker and others have noted the importance of assisting families struggling to make ends meet. In states without payday loans, many resort to getting help from family or friends. Some cut back expenses, and there are many churches, government agencies, non-profit and community organizations working to fill the gap.

Tebbe said, “I am disappointed that the chance is slim for the payday-lending bill to get a hearing.” Senate Bill 325 must receive a hearing before the end of January to advance.