INDIANAPOLIS – Many fear financial problems caused by the pandemic will have people running to payday loan companies for help.
This could cause a cycle of debt that our lowest income Hoosiers can’t find their way out of.
More and more are finding themselves unable to pay bills due to financial issues caused from COVID-19.
“This is when the squeeze is going to happen and people are going to be tempted to turn to these store fronts with really high rates of interest,” said Senior Policy Analyst Erin Macey with the Indiana Institute for Working Families. “Or also online loans, which can be even more devastating.”
If you’re involved with an online loan, Macey recommends contacting the Indiana Department of Financial Institutions, the Indiana Attorney General, or the Consumer Financial Protection Bureau to make sure they are legal in this state.
Right now in Indiana, payday loan interest rates can be as high as 391% APR.
“We’ve been calling for a 36% cap on loans in Indiana,” said Macey.
That’s the rate the U.S. Military caps loans at as well as 16 other states, some areas cap it at even less.
However, Indiana has been slow to adopt the idea. Republican State Sen. Greg Walker wrote a bill last year on this that didn’t get a hearing. He declined to comment on whether he plans to try again when asked about it on Wednesday.
“Payday lenders have drained over $300 million from hoosier families and often the most vulnerable we find, the average income of a payday borrower is around $19,000 per year so these are some of our lowest income most struggling families,” said Macey.
So, what happens when states do pass the 36% cap?
“The big companies tend to leave and borrowers tend to report that they are better off without them,” responded Macey.
Their absence would not mean people can’t get small loans in Indiana. There are places who offer low interest loans like HomesteadCS, it’s a non-profit that offers financial education and an 18% APR.
“That is honestly what it takes to make this work for us,” said Executive Director Marie Morse. She explained some of their services.
“We can help them look at their budget we can help them see if there are places they can cut,” said Morse.
Bellwether Research and Consulting surveyed 600 Hoosiers about this cap.
“Tremendous support for a 36% cap, 9 in 10 hoosiers feel like this is important to do, it’s really just a matter of getting lawmakers on board,” said Macey.
The Indiana Institution for Working Families also determined payday lenders have drained over $300 million in finance charges from Hoosier families and communities in the past five years. It said the typical payday loan borrower has a median income of just over $19,000 per year and re-borrows eight to ten times, paying more in fees than the amount originally borrowed.
We’ve yet to confirm whether any lawmakers plan to propose this in 2021.
On Tuesday, the Consumer Financial Protection Bureau determined payday lenders do not have to verify a borrower’s ability to repay a loan before issuing it.
That’s also something these advocacy groups would like to see changed in the future.