INDIANAPOLIS — Indiana lawmakers are reviewing a bill that would allow Hoosiers to borrow more money through payday loans and other nontraditional financial establishments. Those loans would have higher interest rates and additional fees.
For individuals facing financial strain and in need of immediate cash, payday loans can often appear to be the only solution.
Currently, there is a cap of $825 on how much borrowers can access from payday lenders that comes with a minimum of a two-week repayment period. You can read the current statute by clicking here.
The proposed legislation would permit lenders to participate in "supervised loans."
"There is really no product in Indiana that's regulated in the middle for subprime borrowers," said Rep. Jake Teshka (R-North Liberty), the author of the bill.
If passed, the billwould enable non-depository lenders — those that do not offer checking or savings accounts — to provide loans up to $25,000. Additionally, it would increase the maximum interest rate for loans from 25% to 36%.
"At 25 percent there are certain borrowers that these companies cannot underwrite, so there are certain loans that go unmade," Teshka added.
The bill would also allow lenders to impose monthly service fees on top of the interest already charged. The breakdown of how those fees would work can be seen below.
- Principal Amount Up to $2,500: Lenders can charge a monthly service fee of up to 8% of the original principal amount.
- Principal Amount Between $2,501 and $4,000: The monthly service fee can be up to 6% of the original principal amount.
- Principal Amount Between $4,001 and $5,000: For this range, the monthly service fee can be up to 5% of the original principal amount.
- Loans must be between $5,000 and $25,000 and have a minimum term of 6 months.
- Lenders may charge specific monthly service fees based on the principal amount.
- They need to comply with limits on loan finance charges, which could not exceed 36% per year on unpaid balances, depending on the amount.
Bryce Gustafson, a former payday loan user, recounted his own experience with a payday loan.
"I didn't really look at the bottom line or the fine details... that's on me, but I had to kind of dig myself out of that situation and ask my folks to help me out. I think I was 20 years old at the time," he said.
Gustafson expressed concern that increasing loan amounts and adding service fees could further burden lower-income Hoosiers.
"If traditional banks aren't going to provide them the ability to get loans, then they are almost forced to this," he said.
The Indiana Community Action Poverty Institute shares Gustafson's concerns.
"This idea that it's there to help make really expensive loans to struggling borrowers... that doesn't make any sense at all," said Erin Macey, the institute's director.
Despite the critiques, Teshka argues that there currently are no viable alternatives for borrowers with poor credit and low incomes.
"I would love for there to be another solution, right? But currently there just isn't one, and there is this huge gap in the marketplace," he said.
Teshka mentioned that lawmakers are considering additional amendments as the legislation awaits a committee vote.
