Payday Lenders Have Drained An Estimated $322 Million In Finance Charges From Hoosiers Over The Last Five Years

By Brynna Sentel
TheStatehouseFile.com

INDIANAPOLIS— Payday lenders have drained an estimated $322 million in finance charges from Hoosiers over the last five years, according to a new report from groups advocating for the state to rein in those businesses.

The report, released Tuesday by the Indiana Institute for Working Families and the Indiana Assets & Opportunity Network, showed that a 2002 exemption for short-term loans allowed payday lenders to charge annual percentage rates as high as 391 percent.

“This confirms my opinion of this industry,” said State Sen. Greg Walker, a Columbus Republican who has led the fight in the legislature against the payday loan industry. “The cost is too high for all of us. When people suffer needlessly, this product doesn’t need to exist in the state of Indiana.”

According to the report, which can be read in full at http://www.incap.org/payday.html, there are 29 entities licensed to offer payday loans in Indiana, with 11 headquartered out-of-state and operating 86 percent of the payday loan offices in Indiana. In fact, the report states, five of those out-of-state firms operate 79 percent of the 262 payday loan storefronts in Indiana.

Those include “Advance America, Cash Advance Centers of Indiana Inc.” of Spartanburg, S.C. which has 76 loan offices here and “Check into Cash of Indiana LLC.” which has 59 offices here.

The largest Indiana-headquartered operator, G & R Advance Inc. of Indianapolis, owns only 5, or 2 percent, of the storefronts.

Of the 92 counties in Indiana, 64 have at least one payday loan storefront, with about a third of the loan offices located in Marion, Lake, and Allen counties. The report also showed that these payday lenders are disproportionately located in low-income communities – those that fall below 200 percent of the federal poverty level — as well as communities with larger minority populations.

It cited data from Clarity Services Inc., a credit reporting agency, showing that the median income of borrowers who use payday loans nationwide is only $19,752. And, the report said, 60% of payday loans in Indiana are reborrowed on the same day that the previous loan was paid off and 82% are reborrowed within 30 days.

“By lending to borrowers who cannot afford to repay the loan and still meet their other expenses, lenders can reap the benefits of loan churn,” the report states. “Meanwhile, borrowers are more likely to experience overdraft fees, bank account closures, difficulty paying bills, decreased job performance and bankruptcy.”

Walker said that proponents of pay-day loans have argued that the payday loans help more than a million Hoosiers annually cover a financial emergency.

“But that’s not the truth of the industry,” he said. “It’s really only about 120,000 borrowers, which is less than 2 percent of the population of Indiana.”

And, he said, that help comes at a steep price, both financially and on families’ well-being.

“The number-one pressure on the break-up of families is financial pressure and so this has a cost that far exceeds the business opportunity,” Walker said. “The cost is emotional. It’s stress-related. That financial burden has a lot more of a negative impact than just the loss of the money and I think that’s a difficult message to understand when it’s such a small percent of the total population.”

But, he added, “that’s what consumer protection, regulation is supposed to do: Prevent anyone from taking advantage of others… it’s going to take us thinking about the 2 percent who are caught up in this debt trap.”

A bill allowing payday lenders to charge interest rates up to 167 percent was heavily debated in the 2019 legislative session, passing the Senate but later dying in the House of Representatives without a vote.

“We see a divide in the legislature right now,” Walker said. “You’ve got those who have an appreciation for how targeted this marketplace is on the repeat borrower and then you have others who look at it and say if it weren’t for this industry then how would someone get their tire fixed in an emergency situation in order to get back to work the next day.”

State Rep. Woody Burton, the Greenwood Republican who is chairman of the House Financial Institutions Committee, weighed the issue in the last legislative session and expects it to resurface next session. He dismissed much of the concerns, noting that these are supposed to be short-term loans to tide someone over between paychecks.

“I think what they are doing right now is ok if it’s just two weeks,” Burton said, referring to the minimum term of a payday loan. Under current law, borrowers can get a loan for 20 percent of their monthly gross income, up to $605 with finance charges that range from 15 percent of the first $250 to $10 percent for amounts over $400.

“Its an extremely high risk and it’s a high return because I’m sure they get people who don’t pay them too, if they don’t get their paycheck or if they cash it,” Burton said.

The report estimated that if payday lenders had to adhere to the 36 percent interest-rate cap for regular loans, borrowers could have saved more than $291 million over the past five years.

Allowing an annual percentage rate as high as 391 percent “crosses a line,” “Walker said.

When asked what the interest rate should be capped at, Walker said: “I don’t have an effective annual percentage rate to tell you what that is. Thirty-six percent is high but somewhere between 36 percent and 360 percent I think that line is crossed.”

FOOTNOTE: Brynna Sentel is a reporter at TheStatehouseFile.com, a news website powered by Franklin College journalists.

This article was posted bt the City-County Observer without bias, editing or opinion.