The Journal Gazette
Wednesday, June 09, 2021 1:00 am


Cycle of debt

State's ongoing coddling of predatory lenders keeps neediest Hoosiers from progress

Indiana's predatory loan problem isn't going away.

The industry has long preyed upon some of the state's most vulnerable residents, and a recent report from the National Consumer Law Center again backs that up. The nonprofit specializing in consumer issues for low-income people compared caps on short-term installment loans among each of the 50 states.

The results? Not good.

Hoosiers who borrow from non-bank lenders, including payday loan operations and non-bank businesses such as online lenders, can pay exorbitant annual percentage rates, which dwarf those charged by most other states. That's made it especially hard for some Indiana residents trying to recover from financial hardships brought on by the pandemic, according to advocacy groups such as the Indiana Institute for Working Families and Prosperity Indiana, which offers training on economic mobility and financial resilience.

“Despite Hoosiers asking for more responsible lending policies, the state allows some of the highest rate caps in the Midwest,” Jessica Love, Prosperity Indiana executive director, said in a statement. “This is now pitting Hoosiers who are working to recover from the COVID-19 pandemic against the growing ... lending industry – a result of policies that have been moving in the wrong direction for years.”

The “Predatory Installment Lending in the States” report, published in May, finds that rates charged by non-bank lenders in Indiana for some loans rank in the top 10 for highest annual percentage rates among states and Washington, D.C.

Carolyn Carter, who co-authored the report, said these types of loans sometimes are available at storefront payday loan businesses, but not always.

Lenders in Indiana can attach a maximum 89% APR to a six-month, $500 loan, the report says. That's 10th highest in the country and second highest in the Midwest. Only Ohio's 145% rate is higher among Midwest states.

A two-year, $2,000 loan can bring with it a maximum 40% APR – the highest rate in the Midwest and seventh-highest (tied with Nevada) in the country.

The national median rate for the six-month, $500 loan is 38.5%, the National Consumer Law Center reports, and 20 states cap the rate at 36%.

There was some bipartisan support in the Indiana General Assembly two years ago for a 36% cap on some installment loans, but legislation to implement that did not pass. Lawmakers should consider a cap again.

“I think we should keep talking about the challenges high-cost lending causes people,” Jessica Fraser, director of the Indiana Institute for Working Families said in an interview Tuesday.

Steve Hoffman agrees.

The president and CEO of Fort Wayne's Brightpoint said the cycle of debt and repayment can be devastating for those caught up in short-term loans. He's seen borrowers who first took out loans to pay rent but descended into that cycle.

Then, they contacted Brightpoint for help.

“It just makes the problem ... harder for the social service organization to solve,” Hoffman said. “We need to keep hounding the public ... and public officials on this issue.”

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