Payday Loan Bill with ‘Loan Shark’ Rates Advances at Indiana House Floor
An Indiana House committee on Tuesday proposed a measure that would allow payday lenders and subprime lenders to charge interest rates on small loans at levels currently classified as usurious loan tort.
The Financial Institutions Committee has made several changes to the terms lenders can propose under Senate Bill 613 before its members vote along party lines, 7 to 3, to send the bill to the House .
The bill is backed by convenience stores and installment loan stores that have hired lobbyists who argue it will give consumers more borrowing options. Consumer groups, however, call these loans predatory, saying they allow lenders to take advantage of people who are already in financial difficulty.
The committee released a 17-page amendment to the bill about 45 minutes before its meeting on Tuesday, which essentially rewrites various parts of the legislation.
Panel chair Woody Burton declined to consider public comments, noting that the committee heard about three hours of such testimony at a meeting last month.
Bill Sponsor: Loans fill gap for low-income Hoosiers
Even some Republicans admitted that the loans could be problematic. Home sponsor Matt Lehman, R-Bern, said the product fills a gap, essentially allowing low-income Hoosiers with bad credit to get small loans.
But he believes the committee’s changes to the bill will make loans more affordable and provide more protections for consumers.
“These products, we don’t necessarily accept and say it’s the best thing,” he told the committee, “but I think it’s a necessity of the market”.
Asked by Democrats about default rates, Lehman said 40% of people who get such loans in other markets fall behind in their payments.
Indianapolis Democrat Carey Hamilton said allowing such loans was doing more harm than good. She believes they will lead to more bankruptcies, echoing comments previously made by consumer advocates.
“These people will suffer more if they take advantage of these products rather than turning to the community resources available to them today,” she said.
Previously: Efforts to Legalize ‘Lending Shark’ Rates Could Bring New Breed of Lenders
Consumer groups scoured the amendment trying to capture the changes before, during and after the meeting. Many had hoped to share their concerns about some of the changes, but Burton did not allow the testimony.
“They’re going to be able to lend a lot more money to borrowers with a lot lower income with this new product,” said Erin Macey, senior policy analyst at the Indiana Institute for Working Families. “And these will be much larger loans.”
Interest rate more than double what the state calls usurious loan
The committee’s changes would essentially reduce the annual interest rate allowed on proposed unsecured loans from 192 percent to 167 percent, according to Macey. That’s still well above Indiana’s threshold for criminal loan sharking, 72 percent. People earning as little as $ 900 per month could apply for nine-month loans of up to $ 1,500 at that rate.
In the bill, the interest rate is actually calculated as a monthly charge of $ 9 per $ 100 on the initial principal. In this scenario, a consumer who borrows $ 1,500 for 9 months and makes the payments on time would have a total of $ 2,715, with $ 1,215 in fees.
In the revised bill, people could take out a new loan 15 days after paying off a previous loan, instead of every week.
The committee lowered the limit for another type of loan from $ 4,000 to $ 3,000 and lowered the proposed interest rate from 99% to 72%. The committee also set a maximum loan of 3 years. It had been proposed that it be unlimited.
The committee also removed language that had allowed lenders to place liens on title deeds to collect unpaid debts.
Lawmakers have reduced the upfront fees proposed in the bill for all of these loans from $ 150 to $ 100. The current law only allows a fee of $ 50.
The bill also increases the amount that lenders can charge for most types of loans, with mortgages being a big exception, to 36% from 25%.
Indiana law currently allows an exception to the loan sharking law. Lenders can provide two week payday loans of up to $ 605 at an interest rate of 391%. The average loan is $ 350, Macey said.
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The seven Republicans on the committee voted for the bill, Senate Bill 613. This is remarkable, as the Senate voted 26-23 to approve the bill in February, with several Republicans joining Democrats in opposition.
On the same day, the Senate rejected a competing bill that would have capped interest rates, including on payday loans, at 36%.
Consumer groups call it predatory loans
The defeat of this bill was a big setback for more than 60 consumer groups – including charities, veterans organizations and churches – who view high-interest loans as predatory. These groups are now trying to defeat the current bill.
The payday loan industry has been pushing for legislation similar to Senate Bill 613 over the past three years, only to be pushed back amid concerns from consumer organizations and others who consider interest rates as high as predatory.
This year, the lending industry hired several prominent lobbyists at the Statehouse, including former Republican lawmakers Matt Bell and Matt Whetstone.
IndyStar reporter Tony Cook contributed to this story.
Call IndyStar reporter Chris Sikich at 317-444-6036. Follow him on Twitter: @ChrisSikich and on facebook.com/chris.sikich.