This represents a radical departure from Indiana’s existing 36 percentinterest rate cap on installment loans under $2,000. In fact, this new language would provide a state sanction of installment lending at more than three times the existing felony loan sharking rate of 72 percent APR. Indiana already has a special exemption in statute for payday lenders, who can make loans of up to $605 for 14 days at rates reaching 391 percent APR.
Payday lenders get to “cut the line” and withdraw funds when a borrower’s paycheck is deposited, so the borrower often does not have enough left over for rent and groceries. This leads to repeat borrowing, allowing lenders to rake in about $70 million in fees in Indiana each year.
Prohibition of usurious lending practices is a principle embedded in many religions, including Christianity and Judaism. Exodus clearly states, “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer.” (Exodus 22:25). According to Pope Francis, “When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human! This dramatic scourge in our society harms the inviolable dignity of the human person.”
High-cost lending is not only immoral and unethical; it is also bad economic policy. Research suggests that high-cost borrowing can increase bankruptcy and other economy-damaging consequences.
Beyond this, responsible alternatives exist: credit unions, community loan centers, and even subprime credit cards all provide access to credit at less than 30 percent APR. Because of the damage caused by these high-cost products, other states have moved to curb them. Last November, South Dakota voters decided (by a 3-to-1 margin) to join the other states who cap all loans at 36 percent. Active-duty military are protected as well – in 2006, Congress capped loans to active military members (but not veterans, who may borrow at rates four times as high as the average American) at 36 percent APR. Authorizing new loans at 240 percent APR would be bad for Hoosiers and the economy.
We urge the General Assembly to reject the damaging proposal being offered in SB 245.
Steve Hoffman, Brightpoint; Angie Moellering, Lutheran Social Services of Indiana; David Nicole, United Way of Allen County; Gloria Whitcraft, Catholic Chairities