This editorial was written by the (Fort Wayne) Journal Gazette.
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 recently 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 — an attempt to give a dubious bill momentum before advocates for the poor have time to effectively react to the massive amendment.
A proposed amendment to send the bill to an interim study committee failed Feb. 25, and the bill passed the Senate 26-23 on Feb. 26. (One of the three state senators who represent Bartholomew County voted against it: Greg Walker, R-Columbus. Sens. Eric Koch, R-Bedford, and Chip Perfect, R-Lawrenceburg, voted for it.) The bill is now in the House awaiting action.
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 the 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.
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.
If you believe ramrodding this bill expanding payday-loan options is the wrong answer, it’s urgent you contact your legislators today.
