February 10, 2017

Church opposes pending payday lending legislation

By Brigid Curtis Ayer

A measure to expand payday lending, a plan the Indiana Catholic Conference (ICC) opposes due to its exploitative nature of low-income persons, is expected to be heard before a Senate panel by mid-February.

The proposal, Senate Bill 245, called the Long Term Small Loans bill, would expand short-term, high-cost loans, also commonly referred to as “payday” loans, in three ways. It increases the dollar amount of the loan, the payback duration, and the interest rate charged.

Glenn Tebbe, executive director of the ICC, who serves as the public policy spokesperson for the bishops in Indiana, said the bill attempts to expand the market for those who use short term loans. However, the practice and nature of these high-cost loans tend to trap a person in a cycle of borrowing and debt accumulation. Payday loan borrowers are charged exorbitant interest rates and fees. The Church opposes this type of loan expansion.

Advocates of payday loan expansion say more products on the market give borrowers more options. Advocates also claim a payday loan expansion could potentially help low-income persons with poor credit establish a credit history.

Tebbe said the majority of persons using payday loans do so to cover everyday expenses, such as rent and household repairs. He explained that although employed, borrowers’ pay is not enough to make ends meet. The cycle repeats. They borrow and remain in debt for months because their paycheck is not enough for living expenses, plus high interest rates and fees generated by the payday loans.

Senate Bill 245 increases the dollar amount of payday loans to a $605 minimum and $2,500 maximum. The payback period for the loan may not be more than 24 months, and caps monthly finance charges to an amount not to exceed 20 percent of the principal. Interest earned on a daily basis must use the simple interest method.

Current law in Indiana allows for a $50 minimum to a $500 maximum payday loan, but the loan may not exceed 20 percent of borrower’s monthly gross income. The annual percentage rate (APR) on a 14-day loan is 390 percent of the amount borrowed.

“The Catholic Church teaches that it is the state’s purpose and duty to protect and facilitate the common good,” said Tebbe. “The weakest members of society should be helped to defend themselves against usury. Laws and policies must protect them from additional burdens.”

Quoting from the U.S. bishops’ 2009 pastoral “Catholic Framework for Economic Life,” Tebbe said, “All economic life should be shaped by moral principles. Economic choices and institutions must be judged by how they protect or undermine human life and dignities of the human person, support the family, and serve the common good.” The Catechism of the Catholic Church points out that exploiting people living in poverty is unjust.

“Even if it does not contradict the provisions of civil law, any form of unjustly taking and keeping the property of others is against the seventh commandment: thus, deliberate retention of goods lent or of objects lost; business fraud; paying unjust wages; forcing up prices by taking advantage of the ignorance or hardship of another” (#2409).

Tebbe added, “Taking advantage of someone and exploiting them is wrong. Although it may be legal, it does not remove ones’ obligation to do what is just. Extending the payday lending practice does not benefit the person, and it is contrary to providing for the common good, to help persons and our society flourish.”

During the 2016 session of the Indiana General Assembly, several groups opposed a similar payday loan expansion measure including Kathleen Taylor, policy director for the Indiana Association for Community and Economic Development. Taylor urged lawmakers to support “responsible alternatives.” Taylor said that the Community Loan Center program currently operating in Lafayette and Fort Wayne is one alternative that provides loans to an economically vulnerable group, yet does so in a fair and equitable manner.

According to a 2015 study on payday and small dollar, high-cost installment loans by the Washington-based Pew Research Center, 75 percent of adult Americans want payday loans to be more regulated, and 72 percent of payday loan users also want more regulation of the industry. Fourteen states and the District of Columbia have banned categorically high-cost installment loans.

Senate Bill 245 has been assigned to the Senate Committee on Insurance and Financial Institutions and awaits a hearing.

Tebbe said he expects the hearing to take place in the next two weeks, and he plans to testify in opposition of Senate Bill 245. He added he hopes the panel defeats the bill, and suggested lawmakers consider lending alternative options such as those offered currently by the community loan centers program to provide more equitable loan options for low-income borrowers.

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

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