Every year payday loan companies drain $60 million in fees from our communities on the 1.2 million loans they make here. These loans mostly affect those in our urban areas and predominantly people of color. Pretty much, everyone working in the inner-city sees these companies as a cancer that feeds on our most vulnerable citizens.
In spite of an annual percentage rate (APR) of 391 percent, these loans are sold as a sensible solution to a short-term financial need. In truth they are a trap that captures the desperate borrower in a round of borrowing and reborrowing to escape the ever-growing debt. Statistically, the clients initially borrow a few hundred dollars, if they don't come in and pay weekly, the companies have access to bank accounts and sweep the money out of their account. Gone. Within seven days, 68 percent of the borrowers, who now find themselves short on rent money or groceries or something else, take out another loan, happily offered by the company. They take it. They need it. In fact within 30 days, 82 percent of borrowers have to take out another loan to keep up with payments.
Borrowers average 10 loans a year, keeping them in debt to the companies for months on end.** Embarrassingly, our Indiana legislature is responsible for setting the APR on these loans at 391 percent. And with profits in the millions, payday loan companies have plenty of money to support politicians who allow them to charge interest rates that strangle those who are desperate enough to borrow. A borrower of $300 has to pay an additional $440 to relieve the debt. In comparison, a sub-prime credit card would only add $20 to the original amount. When predatory lenders lend $300 they get $740 back.
On what planet is that not considered usury? In many other states predatory lending is illegal. Period. Other states cap the interest rate at a lower level. In South Dakota and Colorado, the top rate is capped at 36 percent—the same rate that Federal law caps on loans to active military personnel and a far cry from 391 percent. Earlier this year, when given the chance to lower the rate, only 22 Indiana State Senators voted in favor of a bill to cap the APR at 36 percent. Yet 90 percent of Hoosiers support a 36 percent cap. One might begin to wonder who these folks work for—us or the payday loan companies.
On August 15th Senators Bassler, Boots, Melton, Mrvan, Stoops, Walker, and Zay will join Representatives Carbaugh, Austin, Burton Chyung, Heaton, Lehman, and Shackleford to study our state lending laws. Please call the Indiana Legislature* and talk to one or more of these legislators about their stance on this issue or better yet, attend the hearing and let them you know what you think.
Citizens of Indiana cannot allow our laws to sanction lending that preys on the poor and most vulnerable among us. UNITE INDY is working with others in an effort to change this punitive practice and provide fair alternatives for those who need money to get by. When this comes up again in the legislature, we'll be calling on you for help to get this message across. I have no doubt, together we can get this done.
Always blessed for your support,
Nancy
*Contact the Indiana House of Representatives at (317) 232-9600, (800) 382-9842 , (800) 382-9842. Contact your Indiana State Senator at (317) 232-9400, (800) 382-9467 **Statistics provided by Indiana Institute for Working Families.
