March 4, 2016

Lawmakers reject expansion of payday lending; decide to study issue

A view of the Indiana Statehouse in Indianapolis. (File photo by Natalie Hoefer)

A view of the Indiana Statehouse in Indianapolis. (File photo by Natalie Hoefer)

By Brigid Curtis Ayer

The Indiana Catholic Conference (ICC) and other advocacy groups recently helped persuade state lawmakers to reject an amendment to a bill that would have expanded payday loans.

Instead, lawmakers moved legislation to further examine the issue in a summer study committee with the hope of finding alternatives methods to help lower-income individuals borrow money while reaching self-sufficiency. The ICC supports the legislation to study payday lending.

A payday loan—which might also be called a “cash advance” or “check loan”—is a short-term loan usually lent at a high rate of interest that is typically due on a person’s next payday.

The legislative action took shape during a lengthy meeting of the Senate Insurance and Financial Institutions Committee on Feb. 25 when lawmakers heard testimony on House Bill 1340, the payday lending bill. Attorneys representing payday lenders and a few lenders who oversee these financial operations highlighted to the Senate panel the benefits of adopting an expansion of the payday lending industry.

Representatives of advocacy organizations who work with lower-income people testified about the negative impact expanding these types of loans would have on those they serve.

Weeks earlier, House Bill 1340 passed out of the House and came to the Senate as a bill which created a study committee on the payday lending industry. On the last day of regular committee hearings for the Indiana General Assembly, the Senate panel considered an amendment to change the bill from a study committee to a bill to expand payday lending. The amendment, which resurrected controversial language that could not be agreed upon in the House, would have allowed expansion of the industry to lend installment loans up to $1,000 and at an increased annual percentage rate of up to 180 percent.

Heather Willey of the Indianapolis law firm Barnes and Thornburg, who represented short-term loan operators, spoke in support of the amendment. She said that these types of loans potentially could have the benefit of helping low-income individuals who have poor credit to build their credit history, so they could qualify for a more traditional loan. Other supporters of the bill said the legislation would help loan providers comply with new federal regulations soon to be promulgated.

Glenn Tebbe, executive director of the ICC, who serves as the legislative and public policy spokesperson for the Church in Indiana, testified in opposition to the amendment. He said the interest rate of payday loans would continue to do harm rather than benefit those people seeking such short-term loans.

“Payday loans tend to trap people into a cycle of repaying initial debt,” Tebbe said, adding it traps people into “exorbitant” interest rates.

“The majority of people using these loans are working, but have so low of pay they cannot take care of their everyday expenses. So they reach out for this type of cash to make ends meet,” he said. “People who are in a vulnerable position and already experiencing financial distress are being taken advantage of.

“We believe it’s the state’s responsibility to facilitate and protect the common good,” Tebbe continued. “The weakest members of society should be protected against usury or any other type of exploitation. Economic choices and policies should be judged by how they protect and uphold the dignity of the human person, support the family and serve the common good.

“We don’t believe this amendment is in the best interest of the people or a way to help them reach self-sufficiency,” he added, “and would encourage you to not adopt this amendment, but to leave the bill in the form it came out of the House as a study committee.”

Tebbe added that the bishops across the nation, through organizations like Catholic Charities and the Catholic Campaign for Human Development, are actively working to provide alternative funding sources to assist people who need help.

Lucinda Nord, who represented the Indiana Association of United Way, also opposed the amendment. She supported the issue being discussed in a summer study committee. Nord said she thinks there is a need for some type of alternative financial product, but felt that the high interest loan was not one that would help people move toward financial stability. She added she would like to see an expansion of services that help people move toward self-sufficiency.

Lisa Wilken, representing American Veterans, described the amendment as the “wrong approach” to helping low-income people. She said that she spoke with a veteran on her way to the Statehouse who said payday lending businesses are located outside of every military installation. She added many veterans find themselves living paycheck to paycheck, and are vulnerable to these types of loans.

The committee rejected the amendment by a 6-2 vote, and passed House Bill 1340 which will create a summer study committee on payday lending practices.

“The ICC supports the study of the industry and its impact on the people of Indiana,” Tebbe said. “If the bill passes the General Assembly this year, I’m hopeful the summer study will open up new opportunities for productive lending alternatives which move persons toward self-sufficiency.”
 

(Brigid Curtis Ayer is a correspondent for The Criterion. For more information about the Indiana Catholic Conference, its Indiana Catholic Action Network and the bills it is following in the Indiana General Assembly this year, log on to www.indianacc.org.)

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