January 19, 2018

Payday lending bill makes practice more equitable for borrowers, says ICC

By Brigid Curtis Ayer

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

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

Glenn Tebbe, executive director of the ICC, 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, said the research he has done on this issue is interesting, and it gives support as to why 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 when looking at payday loans on a state-by-state basis, 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 that 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.

“Where the stresses are more measurable is on the emotional and physical strain level,” said Walker. “This level of interest increases, and actually compounds that stress on the individual and the family network. A customer for a payday loan is already in financial distress. A lot of the time the borrower is borrowing to pay off another debt, pay a utility bill or put food on the table,” he said.

“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 nonprofit 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 Indiana 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.

The Center for Responsible Lending, a nonprofit organization based in North Carolina dedicated to educating the public on predatory financial products, studied the effects on low-income families in states with payday loans versus those without them. Their research showed that those with limited means fare far worse in states where payday lending products are available. The study concluded that rather than help a household, payday loans are more likely to create a debt burden and worsens the household’s financial stability.

Walker and others have noted the importance of assisting these 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.
 

(Brigid Curtis Ayer is a correspondent for The Criterion.)

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