INDIANAPOLIS, Ind. – A group of Hoosiers from several organizations are speaking out against a bill they call a “financial death trap” for those struggling with their finances.
Representatives from several military, religious and community organizations called on Representatives in the Indiana House to vote against Senate Bill 613, which would allow payday and subprime lenders to charge interest rates on small loans at levels currently classified as felony loan sharking.
“Which opens doors to lending practices that are unjust and which take unfair advantage of people in desperate circumstances,” said Pastor Tammy Butler Robinson, of the House of God Church.
The 69-page bill narrowly passed the Indiana Senate last month by a vote of 26 to 23 after it was amended from its original 14-page version. The vote also came just hours after the Senate voted down a bill that would have capped interest rates, including payday loans, at 36 percent.
If the House passes the bill in its current form, it would change Indiana’s definition of “loan sharking.” Any interest rate over 72 percent is currently illegal in Indiana. The bill that passed the Senate would allow interest rates up to 192 percent on six to 12 month loans between $605 and $1,500. It would also allow up to 99 percent interest rates on installment loans up to $4,000 with negotiable repayment periods up to four years.
Critics like Indiana Black Expo President, Tanya Bell, say the high interest loans are a way for lending companies to take advantage of Hoosiers who are already struggling with their finances.
“If these families’ financial houses are on fire, the loans allowed in this bill would throw gasoline on that fire,” Bell said.
Justin Castelli, CEO of RLS Wealth Management, says loans with such high interest rates can spell financial disaster for people who already have damaged credit.
“It really puts those people at a disadvantage trying to catch up and pay that loan back, and really it’s just going to complicate their situation,” Castelli said. “I don’t think charging a higher interest rate for somebody who’s not as credit worthy as somebody else is necessarily a bad thing, but I think it’s the level of the interest rate that is the problem.”
Supporters of the bill, like House co-author Representative Matt Lehman says high interest loans like those mentioned in the bill already exist in unregulated markets that are not monitored by the government.
“The Indiana casinos lend money, you’ve got people on the street corner who will loan money,” Lehman said. “You’ve got some very nefarious people out there who will loan you money.”
Lehman says nobody is in favor of 192 percent interest loans, but making them legal would also mean the state could regulate and make record of them. In that way, he says financially struggling Hoosiers could begin to rebuild their credit by paying off the loans.
Lehman also says the numbers in the bill could change during discussions in the House.
“I think we have to have a good hard look at this and say okay, this came from the Senate, it has support in the Senate, but we’re going to take a new fresh set of eyes, we’re going to look at this and say what should these guardrails be,” Lehman said.
Senate Bill 613 is currently awaiting a hearing in the House Financial Institutions Committee.