Legislation would offer state employees access to lower-interest loans

The Indiana Catholic Conference (ICC) is among a wide range of advocates backing a bill that would offer state employees an alternative to relying on high-interest payday loans in times of financial hardship. 
 
Senate Bill 122 would allow employees of the State of Indiana to borrow up to $1,000 through nonprofit loan programs already in place statewide and then repay them through payroll deductions. The lawmaker behind the bill says this lower-cost loan option could serve as an important new benefit for state employees, particularly those struggling financially or facing unexpected expenses. 
 
“There are people in this state who face financial emergencies – perhaps because of their health or a car breakdown – and they need money,” said Sen. Spencer Deery (R-West Lafayette), the primary author of Senate Bill 122. “The state can be a leader in saying that offering these nonprofit loans is an excellent benefit we can offer employees.”
 
Under the proposed legislation, the State of Indiana would gradually phase in this new benefit to its 32,000 employees by expanding nonprofit loan programs already in place through Community Loan Centers (CLCs) and credit unions and then offering them to employees of state agencies. The small loans would carry an 18 percent interest rate – dramatically lower than the more than 300 percent interest that many payday loan centers and other predatory lending institutions charge. 
 
“These Community Loan Centers also offer opportunities for financial counseling and help people to build credit,” Sen. Deery said. “So it’s not just helping people in a particular moment, but it’s helping them to build the skills to become financially self-sufficient.”
 
The ICC – the public policy voice of the Catholic Church in Indiana – supports the measure because of the Catholic Church’s longstanding commitment to fairness and justice in financial matters, especially concerning the poor. 
 
“Financial health and how we loan money to other people is something that has long been of interest to the Church, even back to the Middle Ages,” said Alexander Mingus, executive director of the ICC, during a committee hearing on the legislation Jan. 15. “In fact, the Franciscans were among those who helped develop the first systems of small-dollar loans – microloans – to people who were most in need.
 
“We think this bill is a common-sense way to provide alternatives to potentially higher-cost options for people who have need for a small-dollar loan.”
 
During a recent ICC podcast, Mingus elaborated on the subject, pointing out that payday lending institutions often locate themselves in lower-income neighborhoods and target people in desperate financial situations. By contrast, he said the Catholic Church has taught for hundreds of years that lending money should be considered a way to help people in the spirit of love and charity – not a means to profit from someone else’s need.
 
“We have many Church documents on the intricacies of economic life, and the moral questions deeply embedded in economic life,” Mingus said during the podcast that he co-hosts with Roarke LaCoursiere, the ICC’s new associate director. “The Church has had a long history of teaching on the sin of usury – essentially charging too much interest on a loan and profiting from it while taking advantage of somebody else. The Church looks at loans and says that these are things made to be offered out of love for another person.”
 
One key advantage of the nonprofit loan program proposed in Senate Bill 122, according to Mingus, is the relationship between employer and employee that underpins it all.
 
“Employers want their employees to be financially stable, to be healthy and well, so that they can show up and do the work they are employed to do,” he said. “Whereas when we look at high-cost loans, that relationship aspect – which in Catholic social teaching on loans is so important –isn’t there.” 
 
Another advocate for Senate Bill 122 offered lawmakers a different economic perspective during the Jan. 15 hearing. Andrew Bradley, senior director of policy and strategy for Prosperity Indiana, discussed the long-term fiscal implications of freeing people from what he termed the “debt trap” of small-dollar loans offered by predatory lenders.
 
“If (state employees) have to go to a payday lender, they’re going to be faced with APR rates of up to 391 percent,” said Bradley, whose organization is the Indiana statewide coordinating body for the Community Loan Center (CLC) program. “This alternative provides us with around an 18 percent APR. That is potentially thousands and maybe millions of dollars over time that could be saved of taxpayer money through this more responsible alternative.”
 
This is the second year that the ICC and its allies have supported this type of legislation. In last year’s General Assembly, Sen. Deery introduced an almost identical bill that passed resoundingly in the Senate but did not receive a hearing in the House of Representatives. He said he is hopeful that leadership and committee changes in the House will improve prospects for the legislation this year.
 
During the Jan. 15 committee hearing, the bill saw overwhelming support from a wide array of advocates – from the ICC and other faith-based organizations to representatives of credit unions and other financial institutions. The only objection came from the state comptroller’s office, which would oversee the administration of the loan program. 
 
Because of questions raised about resources that the office would require to carry out the program, the bill was held. Advocates for the legislation maintain that time and effort would be minimal for processing the loans and administering the payroll deductions for their repayment. 
 
Sen. Deery emphasized that the nonprofit loan centers that would partner with state government and offer the loans as an employee benefit are already “established, regulated entities within our state.” He and advocates for the bill also stressed the gradual rollout of the program for state employees and estimated that each new loan would take approximately 15 minutes to process. 
 
At press time, Sen. Deery was optimistic that the issues could be resolved for the bill to move forward. 
 
“I’m confident that we can work out the issues with the comptroller’s office,” he said. “There really isn’t anything revolutionary in the payroll system, and the 15 minutes we estimate per loan is not a big burden. I think the state can lead in this effort, and I think we will work these issues out.”
 
To follow this and other priority legislation of the ICC, visit www.indianacc.org. This website includes access to ICAN, the Indiana Catholic Action Network, which offers the Church’s position on key issues. Those who sign up for ICAN receive alerts on legislation moving forward and ways to contact their elected representatives.