Senate bill would place limits on predatory lending

For someone in desperate financial straits, the colorful signs and billboards entice and offer hope: Need cash now? Loans in minutes. No credit check.

The storefront operations that promise relief from money woes are often located in the most impoverished neighborhoods. And opponents of the payday lending industry say that far from solving people’s financial problems, they only fuel the cycle of debt and poverty – especially among the poorest populations.

Currently, the industry can charge an incremental annual percentage rate of up to a staggering 391 percent on a payday loan, also called a cash advance. Senate Bill 104, introduced this month at the Indiana General Assembly, aims to cap the interest that a payday lender may charge to a 36 percent APR, in line with 15 other states and the District of Columbia. The Indiana Catholic Conference (ICC) supports the bill. 

“We believe that needy families in Indiana should be protected from predatory lending practices that most people would find intolerable,” said Glenn Tebbe, executive director of the ICC, the public policy arm of the Catholic Church in Indiana. “Those who use payday loans are often lower-income persons and families whose paychecks are just short of covering the month’s expenses, and they quickly become entrapped in a web of interest and debt. The ICC calls upon our elected officials to take action on this legislation that would move Indiana one step closer to providing families access to small loans that charge reasonable interest rates.”

Senate Bill 104, authored by Sen. Greg Walker (R-Columbus) and Sen. Mark Messmer (R-Jasper, Senate Majority Leader), targets the fee structures and finance charges that enable the payday loan industry to reap exorbitant interest-rate payments from consumers. Walker emphasized that a person seeking a loan of this type typically will not realize the eventual cost of borrowing until it is too late.    

“These loans put too much strain on fixed-income, limited-income families,” Walker said. “Statistics show that 82 percent of loans of this type are renewed within 10 days. The cyclical nature of it is devastating.”

This is not the first time the issue has come up in the state legislature. Last year, Walker proposed a similar bill that did not receive a hearing. At the same time, a bill to expand the payday loan industry advanced in the House of Representatives but died in the Senate. This year, Walker says he is optimistic that the effort to curb the industry will fare better. 

“I feel hopeful about getting a good hearing,” he said. “We have more co-sponsors for this bill, and there are definitely more people listening and paying attention.” 

Among the staunchest supporters of Senate Bill 104 is Jim Bauerle, vice president and legislative director of The Military/Veterans Coalition of Indiana. A retired U.S. Army brigadier general, Bauerle served 32 years in the military, including tours of duty in Vietnam and Operation Desert Storm. Now he is engaged in a different kind of battle: advocating for veterans and those currently in uniform.

As a military commander, Bauerle witnessed first-hand how the payday loan industry often preys on those serving the country, especially those who are younger and inexperienced with money matters. He recounted the story of an Army reservist in his command who learned he was being deployed to Afghanistan. The young man wanted to propose to his girlfriend and marry her before leaving, so he sought a short-term loan to cover the cost of the ring and other expenses. He soon found himself overwhelmed with debt. 

“In many cases like this, a lender would call our unit threatening to garnish the person’s wages and ask us to get involved and fix the problem,” Bauerle said. “This is the last thing we wanted to have to do when we were worrying about our readiness to go to war and protect our country.” 

A federal law enacted years ago protects members of the armed forces on active duty from predatory loan practices. However, it does not apply to reservists, members of the National Guard, or veterans. 

Beyond advocating for Senate Bill 104, Bauerle, a member of St. Elizabeth Ann Seton Parish in Carmel, wants the public to know that there are many alternatives to payday loans. This includes help from military organizations, as well as assistance offered by Catholic Charities and other faith-based groups. 

“People talk of ‘food deserts’ and say that we also have ‘banking deserts’ in some areas, and that the only way people can deal with emergency expenses is through cash advance loans,” Bauerle said. “But I don’t accept that premise. We don’t have ‘Catholic deserts’ in our state. The Catholic Church is always there to help, and the recipient doesn’t even have to be Catholic.

“There are so many better options than going to a payday lender.”

To follow Senate Bill 104 and other priority legislation of the Indiana Catholic Conference, visit www.indianacc.org.