Tim Evans

tim.evans@indystar.com

Legislation that would allow payday lenders to charge interest on small loans at rates more than double what current Indiana law defines as criminal "loan sharking" will be proposed in a Senate committee Thursday.

The hearing on House Bill 1340 in the Senate Insurance and Financial Institutions Committee, which comes on the final day for bills to be heard in committee, revives controversial legislation that the House voted Feb. 2 to send to an interim study committee.

The revised legislation, which would allow payday lenders to offer six-month loans of up to $1,000 at an annual percentage rate (APR) of 180 percent, has been opposed by a broad coalition that includes community activists and faith leaders.

A copy of the proposed amendments to change the state's payday loan law was shared with some of those opponents Tuesday by a lobbyist for the loan industry.

"This language has not been previously debated or vetted, and would represent a radical departure from Indiana's existing statutory interest rate caps of 36 percent on installment loans under $2,000," says a letter of opposition signed by 17 critics of the legislation.

"In fact, lending at more than double that rate — 72 percent APR — is currently considered felony loan sharking. Shockingly, this new language would provide a state-sanction of installment lending at two-and-a-half times the existing felony loan sharking rate."

Among those signing the letter were officials representing the Indiana Community Action Association, the Indiana Institute for Working Families, Military/Veterans Coalition of Indiana, AMVETS, Indianapolis Urban League, Indiana Association for Community Economic Development, Indiana Assets & Opportunity Network, and the Indiana Association of United Ways. It also is signed by faith leaders from Broadway United Methodist Church, Lutheran Social Services of Indiana, Jewish Community Relations Council, Catholic Charities of the Diocese of Fort Wayne-South Bend, Indiana Catholic Conference, and Sisters of Providence, St. Mary-of-the-Woods.

The critics call the loan scheme "predatory" and detrimental to vulnerable Hoosiers who are already struggling financially.

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"Prohibition of usurious lending practices is a principle embedded in many religions, including Christianity and Judaism," the letter said. "Pope Francis has condemned usury as 'a dramatic social ill.' Philosophers Plato and Aristotle decried usury as immoral and unjust. Adam Smith, widely known as the father of our free-market economy, opposed high-interest rates as being economically counterproductive."

House sponsor Rep. Woody Burton, a Republican from Whiteland, had called for the proposal to be sent to a study committee, rather than move it forward this year, partly because of concerns from consumer advocates. IndyStar was told Burton would not be available to comment Wednesday, but would be able after the hearing Thursday.

Another sponsor, Sen. Travis Holdman, a Republican from Markle, said he listened to the concerns of consumer groups and worked with the Department of Financial Institutions, which regulates the payday lending industry, in the crafting of the proposal.

“These aren’t loan sharks we are talking about," Holdman said in his prepared statement. "We are talking about providing access to credit to folks in our state that don’t have any other way to borrow money because they don’t qualify for credit cards, or conventional bank or credit union loans.”

Jabo Covert, vice president of Check Into Cash, which is licensed to issue payday loans in Indiana, said the proposed legislation actually represents a potential reduction over current short-term loan fees. He added the six-month, unsecured loans fill a niche that is not served by conventional lenders.

The current law, he said, allows payday lenders to charge borrowers $15 a week for every $100 loaned. That comes out to the equivalent of more than 400 percent APR, while the new proposal comes in at an APR under 200 percent.

Covert said lenders who issue longer-term loans can charge lower rates because they have more time to collect interest.

Jessica Fraser, program manager for the Indiana Institute for Working Families, said the proposed amendment would require a person to pay at least $585 in interest on a six-month loan for $1,000. And if they are unable to make the full monthly payments, or pay later, the amount due in interest and penalties can climb much higher — in some cases, amounting to more than the original loan value.

"This amendment will allow low-income families to take out loans over a longer period of time and for more money, still at extremely high interest rates," Fraser said. "It just makes families get further into poverty because they get stuck in these loan traps."

In a meeting Wednesday with a lobbyist for the payday loan industry, Fraser said the push for the new legislation was described as being driven by concerns about potential changes in federal regulations.

The profitability of the payday industry is evident by the number of lenders in the state. While people often consider McDonald's and Starbucks ubiquitous — joking you can hardly go a block without seeing one or the other — in Marion County there are a total of 71 of the two businesses compared to 92 payday lenders.

Fraser said opponents agree there is a need for Indiana residents to have access to small, short-term loans, but contend there are better and more financially responsible options.

"Federal law specifically authorizes credit unions to loan up to $1,000 for up to six months at a maximum of 28 percent APR — less than one-sixth the extreme rate proposed for HB 1340," the letter notes.

"Additionally, with seed funding from the JP Morgan Chase Foundation, a Community Loan Center is being operated by Brightpoint in Fort Wayne, creating a 12-month installment loan program for up to $1,000 at only 18 percent APR. Another alternative, the Community Loan Center of West Central Indiana, operated by HomesteadCS, is based in Lafayette."

Covert, the payday loan company official, said he applauds nonprofit and civic groups that provide such loans. But he said the demand far surpasses the programs and funding available.

The payday loan industry has an active lobbying effort at the Statehouse. A July campaign finance report showed Indiana Gov. Mike Pence's re-election campaign has received $10,000 in contributions from out-of-state payday lending firms.

Call IndyStar consumer advocate Tim Evans at (317) 444-6204. Follow him on Twitter:@starwatchtim.

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