Tuesday, February 23, 2016
February 23, 2016
This Thursday, on the last day of
hearings for the 2016 Indiana General Assembly, the payday lending industry
will be requesting that new language be added to HB 1340 that would authorize
them to offer 6-month loans of up to $1,000 at an Annual Percentage Rate (APR)
of 180%. 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% on installment loans
under $2,000. In fact, lending at more than double that rate, 72%, is currently
considered felony loan sharking.
Shockingly, this new language would provide a state sanction of
installment lending at 2 and half times the existing felony loan sharking rate.
Loans made at this usurious rate do
not help struggling Hoosiers. Those already living paycheck to paycheck find
themselves pushed into a hole of debt often requiring more borrowing, default
or bankruptcy. A recent study by Purdue not surprisingly found that as interest
rates climb, defaults increase, further damaging already poor credit records.
Prohibition of usurious lending
practices is a principle embedded in many religions, including Christianity and
Judaism. 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.
The past 2 decades have witnessed the
explosion of payday lending, a practice through which loans up to $605 are made
at exorbitant rates for 14 days, reaching 391% APR in Indiana. Congress reacted by passing legislation in
2006 that prohibits loans to active military members in excess of 36 %
APR. Sadly, this protection ends when
military members become veterans.
It is not good policy to create larger
and longer-term products for predatory payday lenders. There is unquestionably
a need for loans available to those with shaky credit. However, there are responsible alternatives.
For example, federal law specifically authorizes credit unions to loan up to
$1,000 for up to 6 months at a maximum of 28% APR –
less than one-sixth the extreme rate proposed for HB 1340. 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% APR.
Another alternative, the Community Loan Center of West Central Indiana,
operated by HomesteadCS., is based in Lafayette, IN.
Authorizing new loans at 180% annual
interest is bad for Hoosiers and bad for the economy. We urge the members of the General Assembly
to reject the damaging proposal being offered as an amendment to HB 1340, and
to focus instead on development and expansion of responsible lending and financial
literacy programs.
Signed,
BG James L. Bauerle USA Ret., Military/Veterans Coalition of Indiana
General Officers, Sisters of
Providence, Saint Mary-of-the-Woods, Indiana.
Ed Gerardot, Indiana Community
Action Association
Jessica Fraser, Indiana Institute
for Working Families
Andy Fraizer, Indiana Association
for Community Economic Development
Kelsey Clayton, Indiana Assets
and Opportunity Network
Steve Hoffman, Brightpoint, Fort
Wayne, Indiana
Lisa Wilken, AMVETS
Rev. Michael Mather, Broadway
United Methodist Church, Indianapolis, Indiana
Angie
Moellering, Lutheran Social Services of Indiana
David Sklar, Jewish Community
Relations Council
Anthony Mason, Indianapolis Urban
League
Lucinda Nord, Indiana Association
of United Ways
David Nicole, United Way of Allen
County
Gloria Whitcraft, Catholic
Charities of the Diocese of Fort Wayne–South Bend
Fred Everett, Assistant to
Bishop, Diocese of Fort Wayne/South Bend
Glenn Tebbe, Indiana Catholic
Conference
Marie Morse, HomesteadCS, Lafayette, Indiana
Marie Morse, HomesteadCS, Lafayette, Indiana
Photo credit: "Payday loan shop window" by Gregory F. Maxwell <gmaxwell@gmail.com> PGP:0xB0413BFA - Own work (Original caption: “By Uploader”). Licensed under GFDL 1.2 via Commons goo.gl/LXkIX6
