Thursday, February 9, 2017

[Update: On February 16th, the Senate Insurance and Financial Institutions Committee rejected SB 245 by a bipartisan 5-4 vote. Please help us thank Senators Bray, Melton, Mrvan, Ruckelshaus, and Walker for their votes to protect working Hoosier families.]

This year, payday lenders have put heavy pressure on our lawmakers to give them a new carve-out in state statute. SB 245 will allow them to offer 24-month loans of up to $2500 at 240 percent Annual Percentage Rate (APR). While the industry argues that there are safeguards in the bill, an individual making just $30,360 an income $10,000 shy of covering the basics for a single adult with one child in Marion County  would qualify for the full amount and would pay $9652 in interest alone over the two-year loan period.

This represents a radical departure from Indiana's existing 36 percent interest rate cap on installment loans under $2,000. In fact, lending at 72 percent APR is currently considered felony loan sharking; this new language would provide a state sanction of installment lending at more than three times the existing felony loan sharking rate.

Indiana already has a special exemption in statute for payday lenders, who can make loans of up to $605 for 14 days at rates reaching 391 percent APR. Payday lenders get to cut the line and withdraw funds when a borrowers paycheck is deposited, so the borrower does not have enough left over for rent and groceries. This leads to repeat borrowing, allowing lenders to rake in about $70 million in fees a year.

Prohibition of usurious lending practices is a principle embedded in many religions, including Christianity and Judaism. Exodus clearly states, “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer” (Exodus 22:25;). And according to Pope Francis, “When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human! This dramatic scourge in our society harms the inviolable dignity of the human person.”

High-cost lending is not only immoral and unethical, it is also bad economic policy. Research suggests that high-cost lending leads to bankruptcy and other economy-damaging consequences. Beyond this, lower-cost alternatives exist. Credit unions, community loan centers, and even subprime credit cards all provide access to credit at less than 30 percent APR.  

Because these financial products damage families financial well-being and have ripple effects throughout the economy, other states have moved to curb high-cost lending. Last November, South Dakota voters decided to cap all loans at 36 percent by a 3-to-1 margin. Voters in Arizona and Montana did the same. Active duty military are protected as well - in 2006, Congress prohibited loans to active military members (but not veterans, who are more likely to borrow from payday lenders than the average American) in excess of 36 percent APR.

Authorizing new loans at 240 percent APR would be bad for Hoosiers and bad for the economy.  We urge the members of the General Assembly to reject the damaging proposal being offered in SB 245.


Lisa Wilken, Legislative Director, AMVETS, Department of Indiana
Steve Smitherman, CareSource Indiana
Kelsey Clayton, Indiana Assets and Opportunity Network
Maureen Noe, Indiana Association of United Ways
Glenn Tebbe, Indiana Catholic Conference
Laura Berry, Indiana Coalition Against Domestic Violence
Indiana Coalition for Human Services
Anthony Mason, Indianapolis Urban League
Ed Gerardot, Indiana Community Action Association
Jessica Fraser, Indiana Institute for Working Families
Dr. Bill Chapman, Indiana Friends Committee on Legislation
David Sklar, Jewish Community Relations Council
Anthony Fraizer, Prosperity Indiana
Peggy Frame, Southeast Community Services
Kerwin Olson, Citizens Action Coalition
Jay Height, Pastor, Shepherd Community, Indianapolis
Michael Bowling, Pastor, Englewood Christian Church
Mike Wilkins, Missions and Outreach Minister, Outlook Christian Church
Rev M. Bert Kite, Senior Pastor, Castleton United's Methodists Church
Marcie Luhigo, Global Outreach Director, Local Compassion & Generous, The Creek
Shelly Dodson, All-Options Pregnancy Resource Center
Margaret Wooten, Chicago Urban League

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