Payday Lenders On the March: Fourth Attempt to Expand High-APR Loans Gets Traction
Payday lenders, or predatory lenders (as they’re sometimes referred), are making their fourth attempt, in as many years, to expand their product line in the State of Indiana. “This was our first year that we’ve tried to eliminate it altogether,” said Brightpoint President/CEO Steve Hoffman.
A coalition of nonprofits and community representatives, led by the Indiana Institute for Working Families and including Fort Wayne’s own Brightpoint, financial institutions, faith-based groups, and veteran groups, introduced a bill that would have limited all lending in the state, notably for payday institutions, to 36% APR (Annual Percentage Rate). It’s the same cap offered by banks, credit unions, and Brightpoint…their lending program works directly with employers, like their partner Parkview Health, to provide loans for employees.
That coalition bill was defeated (the payday lending were the victors) in the Senate, which was thought to be the tougher parent when it comes to passing legislation, according to Hoffman. “Now we’re kind of worried,” he said. The payday lenders will next attempt to pass their bill through the House of Representatives; the first step is a committee hearing where both sides (the coalition and the lenders) will make their respective cases sometime in the next couple of weeks.
This time around, according to Hoffman, the payday lenders are coming with two new products instead of their usual one, a bigger expansion that involves once again extending the life of a loan. In addition to offering a two-week product, the lenders are attempting to provide a 12-month and a four-year product. “With both of those products, they show how the APR is less, but when you do the math, the actual real dollar figures are much higher,” Hoffman said.
The four-year product, for example, has an improved 99% APR, but a $4,000 loan, let’s say, will yield $12,000 of interest over that span; a borrower would pay $16,000 total from that initial four grand ask. “That’s the big problem with it. And that other product is somewhere in the middle,” Hoffman said.
The Fort Wayne Ink Spot reported on the payday lenders’ third attempt in 2018. As reported in our Issue 4 cover story, the coalition defeated bill HB 1319 that would have expanded payday loans with an APR up to 222%.
That defeat 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. Extending the life of a loan, up to a 4-year payment plan, is the payday lenders’ 2019 comprise.
Their current plan, and their two proposed products, perpetuate a cycle of emergency borrowing, maintaining a status quo of financial distress for families, according to Hoffman. Borrowers, mostly hailing from below area median income (most make less than $30,000 per year) have little choice but to hold off paying essential bills because of the 14-day deadline imposed by payday lenders. This increases the probability of returning to the same institution for another loan to replace the funds now spent because of the original repayment. That two-week deadline comes at you quick.
Another bill comes up…another trip to the payday lenders. “The average [payday loan] borrower takes out eight consecutive loans,” Hoffman said, in our 2018 cover story.
Why has the lenders’ bill this year been more successful? “The argument is that people need these products,” Hoffman said, [that] this gives [consumers] two more options on the path toward being what they call bankable. “I’ve spoken to hundreds of people, and not a single person said payday lending is a good thing.”
14 states by law do not allow payday institutions to set-up shop.
Contact State Legislators
To find and contact state senators and representatives, to provide feedback about payday lenders and the upcoming hearing at the House level, visit the website www.IGA.IN.gov/legislative/find-legislators, by entering your home address, city, and zip code.