Votes on payday loans ‘potentially devastating’ for most vulnerable

By Victoria Arthur

The Indiana Catholic Conference (ICC) and other advocates for the poor vow to keep up their fight following two recent votes in the Indiana Senate that in effect would dramatically expand predatory lending in the state.

In a close vote, lawmakers defeated Senate Bill 104, which would have placed limits on the payday lending institutions that charge consumers an annual percentage rate (APR) of up to 391 percent on the short-term loans that they offer. But even more troubling to opponents of the payday loan industry was the passage of Senate Bill 613, which would introduce new loan products that fall under the category of criminal loansharking under current Indiana law.

Both votes occurred on Feb. 26, the final day before the midway point in the legislative session, when bills cross over from one chamber to another. Senate Bill 613—passed under the slimmest of margins—now moves to the Indiana House of Representatives.

“We have to do everything we can to stop this from moving forward,” said Erin Macey, senior policy analyst for the Indiana Institute for Working Families. “This bill goes way beyond payday lending. It creates new loan products and increases the costs of every form of consumer credit we offer in Indiana. It would have a drastic impact not only on borrowers, but on our economy. No one saw this coming.”

Macey, who frequently testifies before legislative committees about issues affecting Hoosier families, said she and other advocates were blindsided by what they considered an 11th-hour introduction of a vastly altered consumer loan bill by its sponsors. She said the late maneuver was likely in anticipation of the upcoming vote on Senate Bill 104, which would have capped the interest rate and fees that a payday lender may charge to 36 percent APR, in line with 15 other states and the District of Columbia. Had it become law, the bill likely would have driven the payday lending industry out of the state.

The ICC had supported Senate Bill 104 and opposed Senate Bill 613. Among other provisions, the revised Senate Bill 613 would change Indiana law governing loan companies to allow interest charges of up to 36 percent on all loans with no cap on the amount of the loan. In addition, it would allow payday lenders to offer installment loans up to $1,500 with interest and fees up to 190 percent, as well as a new product with 99 percent interest for loans up to $4,000.

“As a result of these two votes, not only has the payday lending industry been bolstered, but now there is the potential to make circumstances even worse for the most vulnerable people in Indiana,” said Glenn Tebbe, executive director of the ICC, the public policy voice of the Catholic Church in Indiana. “The outcomes are potentially devastating to poor families who become entrapped in a never-ending cycle of debt. Much of the substance of Senate Bill 613 rises to the level of usury.”

But proponents of the bill, led by Sen. Andy Zay (R-Huntington), say that the proposed loan products offer better alternatives to unregulated loan sources—such as Internet lenders—with even higher fees. They also maintain that they are a valid option for people with low credit scores who have few if any other choices for borrowing money.

“There are one million Hoosiers in this arena,” said Zay, the bill’s author. “What we are trying to accomplish is some stair-stepping of products that would create options for people to borrow money and even build credit.”

Senate Bill 613 passed by a 26-23 vote, just meeting the constitutional majority for passage. Opponents of the bill, including Sen. Justin Busch (R-Fort Wayne), argue that there are many alternatives to payday and other high-interest rate loans for needy individuals and families. Busch points to the example of Brightpoint, a community action agency serving northern Indiana, which offers loans of up to $1,000 at 21 percent APR. The monthly payment on the maximum loan is $92.

“Experience has shown that organizations like Brightpoint can step into the void and be competitive,” said Busch, who serves on the organization’s board of directors.

Tebbe emphasizes that the Catholic Church and other religious institutions also stand ready to help people in desperate circumstances. Now, the ICC and other opponents of predatory lending are poised to continue advocating against the bill as it moves through the House.

“We were obviously disappointed by the outcome of both of the recent votes in the Senate,” Tebbe said, “but the close votes indicate that there are serious concerns about predatory lending practices in our state.”

Macey said that her agency will engage state representatives on what she terms a “dangerous” bill that was passed “without proper study.”

“I was incredibly shocked, both because of the substance of this bill and because of the process by which it moved,” Macey said. “We still don’t know the full implications of parts of this bill. We will meet with as many lawmakers as possible to educate them on the content of the bill and mobilize as much public pressure as we can to stop this from happening.”

To follow priority legislation of the ICC, visit www.indianacc.org. This website includes access to I-CAN, the Indiana Catholic Action Network, which offers the Church’s position on key issues.
 

(Victoria Arthur, a member of St. Malachy Parish in Brownsburg, is a correspondent for The Criterion.) †