For the third legislative session in a row, common sense has prevailed over efforts to expand the payday loan system in Indiana. Though this is good news, it's nowhere near the end of the long battle to protect struggling Hoosiers from rapacious lenders and the perhaps unwitting lawmakers who enable them.
A bill written by Rep. Martin Carbaugh, R-Fort Wayne, to expand the playing field for payday lenders passed the Indiana House but died in the Senate late last month when the chairman of the Senate Commerce and Technology Committee announced he wouldn't be giving it a hearing. “The different groups that were in opposition to it did a good job of relaying their concern to caucus members,” Jasper Republican Mark Messmer told the Indianapolis Star.
That was somewhat of an understatement. Those opponents included a constellation of social service and religious organizations, who understood that Indiana would be doing no favors to credit-challenged Hoosiers by offering them somewhat longer renewable loans at somewhat lower sky-high interest rates.
The existing payday loan system allows applicants to borrow up to $605 for two weeks at 20 percent interest – an annualized rate as high as 391 percent. Carbaugh's proposal, which gained Rep. Bob Morris, R-Fort Wayne, as a co-author, would have allowed 3- to 12-month installment loans up to $1,500 at rates equivalent to as much as 222 percent annually.
Proponents argue that payday-style loans are essential humanitarian tools to help struggling families beset with unexpected expenses. In the rarified atmosphere of the Statehouse, lawmakers are sometimes susceptible to that specious argument.
But renewable, high-interest loans more often drive struggling families into an even deeper cycle of debt, as groups that work on behalf of those families well know.
Erin Macey, policy analyst for the Indiana Institute for Working Families, cited national research by the Pew Charitable Institute that shows the majority of those who seek payday-style loans do so not to meet an emergency but to meet other expenses – which only adds to their burden. “It's a cycle of debt,” she said.
A new report by Hoosier Action and Every Voice says the payday-loan industry spent $1.7 million on legislative campaign contributions and lobbying over the past decade. It's likely the payday-loan industry will try to place yet another expansion bill on next year's legislative menu. But awareness that such proposals are exactly the wrong way to go is building. Perhaps next year, consumer advocates will be able to spend less time lobbying against new payday-loan creations and get the legislature to consider making all predatory-rate lending illegal.