Hello students,
As follow-up on my off-the-cuff remarks about the legislation that I thought was being considered by our august law-makers here in Indiana: the bill was not only proposed in the Indiana House of Representatives , it already passed.
Read on for details from the South Bend Tribune:
Payday loan bill passes Indiana House
Law now before the Senate; could raise APR of unsecured consumer loans to 222 percent
New payday loan rules which passed the state House this week would establish longer-term loans for between $605 and $1,500. Pictured is CheckSmart payday loans on Michigan Street in South Bend. Tribune Photo/ROBERT FRANKLIN
INDIANAPOLIS — A bill that would allow payday lenders to charge fees three times the existing felony loansharking rates passed the Indiana General Assembly and was forwarded to the state Senate this week.
State law requires that loans not exceed interest rates of 72 percent per year. But by offering short-term loans, typically about two weeks long, payday lenders circumvent the annual rate restrictions. According to research by the Indiana Working Families Institute, the average payday loan’s Annual Percentage Rate (APR) exceeds 300 percent.
The payday lending bill that passed 53 to 41 in the state House on Wednesday would create a new tier of payday loans, lasting longer than the traditional two weeks.
If it passes muster in the Senate, the new “unsecured consumer installment loan” could have Annual Percentage Rates (APRs) up to 222 percent. The loans’ terms would be between three and 12 months, and could be taken out on principals of $605 to $1,500. For example, on a three-month loan of $605, a consumer would be charged up to $144 in monthly maintenance fees and $91 in a nonrefundable original fee, adding up to a total payment of $840.
Democrat and District 6 Rep. Pat Bauer, who voted against the bill, said it would expand “usurious” lending practices and added that its passage in the state House is evidence of the sway lobbyists hold in Indianapolis. He said former Republican lawmakers Matt Bell and Matt Whetstone have been the primary lobbyists for the payday lending industry.
“They hired two lobbyists who were former close colleagues of the speaker. They certainly hired them for a reason,” Bauer said. “It’s a shameful example of what money can buy. It’s a shameful example that people’s lives are going to be destroyed further because of this.”
Bauer lamented that if passed into law, the payday lending industry could expand in the state. He called the passage in the house “unconscionable” and “a ruse.”
House Speaker Brian Bosma declined an interview request Friday afternoon. But a staff member of his provided a statement via an email calling Bauer’s comments “insulting, baseless and beneath his dignity,” and added that the new loans would give Hoosiers more options for loans in times of financial emergency.
Rep. Dale DeVon, whose 5th district encompasses parts of Granger and Mishawaka, supports the bill. He said that upon further examination, the safeguards in the proposal would prevent borrowers from going bankrupt as a result of the new loans.
Lenders would be restricted to charging a total monthly payment of no more than 20 percent of the borrower’s monthly gross income, and a person could only have a single installment loan at a time.
“I think everybody would love to see where people didn’t get in the position where they’d need to borrow money short-term,” DeVon said. “If somebody’s struggling, it should help them … Nobody’s forcing them to do this loan, right?”
Jamie Fulmer, a spokesman for national payday lender Advance America, said the addition of a new tier of loans would give consumers more credit options.
“What critics fail to do is put those costs into context, in terms of (a consumer) not getting the credit they need. You have to look at it in its totality. Costs have to be transparent and clear, understood by the customer,” Fulmer said.
He added that providing longer-term loans like the proposed installment loans, with proper regulation, can ensure that illegal lending is curbed in the state.
The bill is opposed by a broad spectrum of charities, advocacy groups, religious organizations and all four of the state’s largest veterans organizations.
No date has been set on a hearing for the bill in the senate.
Amber Werner, director of financial stability at the United Way of St. Joseph County, said adding a new tier of payday loans would only hurt families.
“Financial predators in our communities prey on the most vulnerable families,” Werner said.
But she said there are alternatives to payday loans. As a member of the Northern Indiana Bank On Alliance, Werner helps connect people in dire financial straits with personal finance classes and local banking resources.
“Whether you make minimum wage or fixed income, banks are here to serve you,” Werner said. “Bank On is about empowering individuals to understand there are a lot of great sources around our community.”
She added that if the bill were to become law, the responsibility rests with the community to find alternative ways to help those who are stuck in debt or poverty, through financial education and connection to existing forms of aid.
For Bauer, the bill amounts to legalizing robbery.
“It’s like seeing someone on the street and instead of helping them out, you rob them. Except it’s legal,” Bauer said. “We’re supposed to protect people with laws, this is just the opposite.”
Editor’s note: Tribune reporter Caleb Bauer is of no relation to Rep. Pat Bauer.
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