Payday lenders could charge interest on small loans at rates more than triple what Indiana law currently defines as a criminal loan under a bill that Indiana House has approved this week.
On Wednesday, the House narrowly passed Bill 1319, which would allow storefront lenders to offer three to 12 month loans of $ 605 to $ 1,500 with annual percentage rates of up to 222 %.
Under current Indiana law, rates over 72% are considered a loan shark tort. Payday lenders may offer higher rates, but only for smaller loans.
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The House passed the measure after President Brian Bosma, who rarely votes on the legislation, joined in 52 other representatives by supporting the bill, despite opposition from his own church. The bill now goes to the Senate.
“Some (GOP lawmakers) had had political concerns about it, that it had political ramifications for them in their home districts and sometimes I will vote on something like this so they weren’t left in the wind. themselves, “Bosma mentioned.
The vote comes after intense lobbying from payday lenders, who have hired several lobbying firms, including those of two former Republican lawmakers who served with Bosma – Matt Whetstone and Matt Bell.
The payday loan industry argues that new unsecured loans will fill a niche unserved by conventional lenders, helping cash-strapped and credit-strapped customers who have nowhere to turn.
But opponents argue that these high-interest loan products are predatory, trapping cash-strapped borrowers and sending them into a deadly spiral of debt.
These opponents include social service charities, the state’s four largest veterans organizations, and a number of religious groups – including Grace Church, where Bosma attends and sometimes serves as a usher.
Opponents have been successful in eliminating bills in the past that would have created additional high APR loan options. But this year, naysayers say there appears to be more lobbying power from the payday loan industry.
“It feels like this year is like an army,” said Erin Macey, policy analyst for the Indiana Institute for Working Families. “Every time we push out a story, they’ve found another.”
Four major payday lenders, including Advance America and Check into Cash, spent more than $ 186,000 lobbying the Statehouse last year, according to lobbyists’ registration records.
Industry representatives argue that there is a greater need this year for a new type of loan due to new Consumer Financial Protection Bureau rules created under the Obama administration.
“The net effect of this is that payday loans will largely become obsolete when they take effect next summer,” said Sabra Northam, representing the Community Financial Services Agency. “The impact of this rule is that the consumers our association serves today will have to look to the unregulated market.”
The future of these rules, however, has fallen into limbo under President Donald Trump, who has criticized the CFPB. The agency announced last month that it is rethinking the rules, which would have required lenders to determine in advance whether people can afford to repay their loans.
The bill’s author, Rep. Martin Carbaugh, an accountant and Republican from Fort Wayne, said the new loan product would provide borrowers with an additional way to boost their credit rating.
“We have a demand problem and we need these things,” Carbaugh said.
Supporters say the bill also includes some protections. For example, the proposal prohibits loans if the monthly payments exceed 20 percent of the borrower’s monthly income.
Opponents say these conditions would trap low-income Hoosiers into borrowing money they cannot repay easily.
This means that borrowers would have to earn around $ 23,800 per year to qualify for a $ 1,500 six-month loan. At the end of the loan, that borrower would end up paying $ 2,378, according to an analysis by the Indiana Institute for Working Families.
“I’m all for helping people, but this bill is not helping anyone other than the businesses that are going to benefit from these high interest rates,” said Rep. Robin Shackleford, D-Indianapolis.
Bosma maintained his vote and said he was unaware his church had taken a position on the issue.
“Our church family must of course take a position they see fit, and I must do what I think is comfortable as a policy maker,” Bosma said Wednesday. “It wouldn’t be the first time I’ve disagreed with people in my church before.”
Call IndyStar reporter Kaitlin Lange at (317) 432-9270. Follow her on Twitter: @kaitlin_lange.
