From: Jill Hammer, Lisa Wilken and Glenn Tebbe
This year, payday lenders have put heavy pressure on our lawmakers to give them a new carve-out in state statute. Senate Bill 245 will allow them to offer 24-month loans of up to $2,500 at 240 percent annual percentage rate (APR). An individual making just $30,360 would qualify for the full amount and would pay $9,652 in interest alone over the two-year loan period.
This represents a radical departure from Indiana’s existing 36 percent interest rate cap on installment loans under $2,000. In fact, this new language would provide a state sanction of installment lending at more than three times the existing felony loan-sharking rate of 72 percent APR. Indiana already allows payday lenders to make loans of up to $605 for 14 days at rates reaching 391 percent APR.
Payday lenders get to “cut the line” and withdraw funds when a borrower’s paycheck is deposited, so the borrower often does not have enough leftover for rent and groceries. This leads to repeat borrowing, allowing lenders to rake in about $70 million in fees in Indiana each year.
Prohibition of usurious lending practices is a principle embedded in many religions. Exodus clearly states, “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer” (Exodus 22:25). High-cost lending is also bad economic policy. Research suggests it can increase bankruptcy and have other economy-damaging consequences.
Beyond this, responsible alternatives exist: credit unions, community loan centers and even subprime credit cards all provide access to credit at less than 30 percent APR. Because of the damage caused by these high-cost products, other states have moved to curb them. Active duty military are protected as well; in 2006, Congress capped loans to active military members at 36 percent APR.
Authorizing new loans at 240 percent APR would be bad for Hoosiers and the economy. We urge members of the General Assembly to reject the damaging proposal being offered in SB 245.
For a full list, see the online version at iiwf.blogspot.com/2017/02/open-letter-lawmakers-should-say-no-to.html.