Payday Lenders Denied: Expansion of High-APR Loans Halted for a Third Time

Written by William Bryant Rozier

A coalition of nonprofits and community representatives, led by the Indiana Institute for Working Families and including Fort Wayne’s own Brightpoint, recently defeated bill HB 1319 that would have expanded payday loans with an APR up to 222%.

The defeat (the third in as many years) insured that payday loan companies could not expand their allowable lending up to $1,500 over 12 months, although their current model of two-week payday loans up to $605 remains.

Their current plan still perpetuates a cycle of emergency borrowing, maintaining a status quo of financial distress for families, according to Brightpoint Executive Director Steve Hoffman.

“[Payday lenders] can loan as much as $605; a borrower has two weeks to pay it back. When you do an APR (Annual Percentage Rate) on that amount, it comes to about 334%” Hoffman said. “If you borrow less than $605, the APR goes up a bit. That’s based on how the fees are structured.”

Most borrowers are from medium incomes, making less than $30,000 a year, which translates to “a couple of grand a month,” Hoffman said. “If I have a $500 bill, how can I pay that back in two weeks when I have rent, food, utilities, and child care to pay for.”

Borrowers have little choice but to hold off paying essential bills because of the 14-day deadline imposed by payday lenders.

Once the first payday loan has been repaid and closed, the borrower can and will (more times than not) take out another loan for those previously neglected bills, beginning the cycle of financial distress.

“The average [payday loan] borrower takes out 8 consecutive loans, ” Hoffman said. “That original $605 can cost a borrower almost $600 more over two months.”For a 14-day pay loan, the current average APR in Indiana is 365%.

The main culprit, according to Hoffman, is the amount of time allotted for repayment. However three years ago, payday lenders started their expansion effort by adding another qualifier to their product in an attempt to address those concerns: to lend higher amounts of money over longer periods of time.

“This past year, they’ve tried to increase their lending amount to $1,500 for up to 12 months.” HB 1319 was their bill that was defeated last November. However, with added fees and higher interest rates, the APR still remained high.

“You’re borrowing a bigger amount over a bigger amount of time. That results in a far higher cost despite the APR going down a bit.  You’re taking more from people that are below medium income,” Hoffman said.|

2017 was the first year that Brightpoint and the coalition proactively introduced an alternative. In Indiana, all financial institutions (except payday lenders) are required by law to charge no more than 36% interest for loans. The coalition’s bill attempted to universalize the requirement for everyone, but was defeated.

Loans at Brightpoint
Brightpoint does not have the capacity yet to conduct business as a separate lending store, like payday lenders, according to Hoffman. So, the nonprofit works directly with employers, like partner Parkview, to provide loans for employees.

For Brightpoint’s Community Loan Center program, a borrower can ask for up to $1,000 at 18% interest over 12 months.
 
“We report every payment to the credit bureau; payday lenders only report if you default,” Hoffman said. “We are trying to build up a borrower’s credit so that their next loan is with a traditional bank or credit union.”

In 15 months, Brightpoint has done 750 consumer loans. “We’ve got a ways to go,” Hoffman said.
The coalition is readying itself for another offensive to block a fourth bill at the start of the next capital session, from the payday lending companies, who, on average, open and close about 4,000 loans a year.