Payday Lenders Seek to Grow | Special sections


Some of the payday lenders in Indiana want the state legislature to consider allowing them to offer small, long-term loans.

Indiana House Bill 1340 would have allowed lenders to offer installment loans in amounts between $ 550 and $ 2,000 for at least one year, with monthly finance charges not exceeding 20% ​​of the principal.

When sufficient support for the initial version could not be found in the Indiana House Committee on Financial Institutions, the bill turned into legislation to form a study committee on the subject.

Groups opposed to the bill in its original form included the Indiana Assets & Opportunity Network, the Indiana Association for Community Economic Development, the Indiana Catholic Conference, and the Indiana Community Action Association with its Indiana Institute for Working Families.

“We think it’s just a huge amount of interest for families to take over such a long period of time, and the loan was revolving,” said Jessica Fraser, program manager for the Institute for Working Families.

On a $ 2,000 12-month loan, a borrower would pay about $ 167 on principal and $ 400 in interest each month, bringing the total interest paid to $ 4,800 in a year, according to HB’s analysis. 1340 on the institute’s website.

Indiana allows finance charges on 14-day payday loans at 15% for the first $ 250 borrowed, 13% for any loan amount between $ 251 and $ 400, and 10% for any loan amount greater than at $ 400.

“We welcome the opportunity to have a review committee because we think we would like to have a data-driven conversation about the installment loan products the payday loan industry is looking for,” Fraser said. . “We absolutely want lawmakers to know that there are alternatives to payday loans.”

Fraser and Rep. Woody Burton, R-Whiteland, expect the Consumer Financial Protection Bureau to finalize federal rules for payday lenders this year and believe this may provide important context for a study of the regulation of the lender. industry in Indiana, they said.

Burton chairs the Committee on Financial Institutions and introduced HB 1340. As with payday loans, the small, long-term loans proposed by his bill would be designed for high-risk borrowers. As a result, because lenders offering these high-risk loans would lose more principal than usual if they defaulted, the loans would “charge high interest rates to get it from someone else.” , did he declare.

“I don’t want to belittle this kind of lending agency; they fill a need there. I don’t think it’s a good thing, but I think it’s a necessary thing, ”said Burton. “If it’s going to be there, I’d much prefer it to be done in a regulated process than in parking lots.”

Before the bill was turned into a study committee proposal, supporters suggested alternative versions of it when Burton told them the finance charge rate was too high for the committee to accept. , did he declare.

Forming a study committee to determine where the industry should be headed will allow members to examine it with other industries where the state must strike a balance between consumer protection and access to credit, Burton said.

Indiana already regulates small installment loans and caps the annual rate of these loans at 36%. This gives the summer study committee the opportunity to broaden its scope.

“I want to take a look at this whole product – payday loans, high-risk loans, leasing with an option to buy, all that category of things,” he said. “We want to make sure consumers are protected and know what they’re getting into.

According to Mark Tarpey, deputy director of the state’s Department of Financial Institutions, about 35 approved small loan lenders originate loans at about 350 locations in Indiana.

Payday loan associations and businesses contacted for this article said they were either unfamiliar with the legislation or returned requests for comment by the deadline for this post.

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