ICC opposes consumer lending bill it labels ‘usury by another name’

As the 2022 legislative session reached its midpoint, a consumer loan bill that proponents tout as a middle ground for those in desperate financial circumstances continued to face staunch opposition by the Indiana Catholic Conference (ICC) and other advocates for the poor.

Senate Bill 352 – ‘Supervised Consumer Loans’ – narrowly passed the Indiana Senate Feb. 1, to the dismay of the ICC and other member organizations of the Hoosiers for Responsible Lending coalition. The bill’s author, Sen. Andy Zay (R-Huntington), maintains that the subprime loan product proposed in the legislation offers people in need of emergency cash but lacking credit an alternative to high-interest payday loans, even allowing them to build credit over time.   

Describing the proposed loan product as a “ladder” for economically challenged Hoosiers to ultimately gain access to traditional lending, Sen. Zay called the legislation a “responsible way” to “get people back on their feet.” And while the product carries the 36 percent annual percentage rate (APR) cap long sought-after by the ICC and its allies in the realm of payday loans, these advocates for the poor say that the numerous additional fees tacked on to the proposed legislation render it unacceptable.

“We are extremely disappointed by the Indiana Senate’s passage of Senate Bill 352,” said Andy Nielsen, senior policy analyst for the Indiana Community Action Poverty Institute. “Simply put, the bill expands predatory lending in Indiana without any consideration for financially vulnerable Hoosiers and their families. The bill creates a problematic new loan product, preserves payday lending, and lacks any consumer guardrails – fueling a debt trap during a time of economic recovery.

“Our legislature should focus on solutions that provide equitable, responsible access to credit,” continued Nielsen, whose organization – formerly known as the Indiana Institute for Working Families – is a longtime ally of the ICC. “Unfortunately, the Indiana Senate has taken the opposite approach. Our coalition, Hoosiers for Responsible Lending, will continue to fight this bill, and we ask that each and every Hoosier do the same.”

Nielsen was among those who spoke out against the bill during a Jan. 19 hearing in the Senate Insurance and Financial Institutions Committee, which Sen. Zay chairs. Angela Espada of the ICC also delivered strong testimony during the meeting on behalf of the five Catholic bishops of Indiana.

“When we look at the fees that can be added on (to this loan product), it ends up being usury in another form by another name,” said Angela Espada, executive director of the ICC, the public policy voice of the Catholic Church in Indiana. “On a three-month loan of just $400, someone could end up paying $633. If you extend it to four months, it turns into almost $700. That’s outrageous. These are people who need help and shouldn’t be exploited.”

In addition, Espada noted during the committee hearing that usury – the lending of money with an exorbitant rate of interest – was publicly condemned by Pope Francis in 2014. She added that in 2015, the United States Conference of Catholic Bishops (USCCB) joined with other Christian denominations to form Faith for Just Lending, which calls for limits on predatory lending nationwide. 

Responsible lending should provide benefits for both lender and borrower, Espada emphasized during her testimony. Senate Bill 352, she argued, “is so unbalanced that most of the good ends up being on the side of the lender.”

While Senate Bill 352 caps interest rates for subprime loans at 36 percent, the maintenance fees and other fees can exceed 75 to 100 percent of the principal of the loan – particularly for loans over $1,500.

An amendment was added to the bill to permit loansharking, Espada added. Lenders who offer these loans would be exempt from prosecution under the state criminal loansharking statute, allowing lenders to evade the 72 percent loansharking cap. This mirrors the exemption provided to payday lenders.

Also expressing concern about the bill during the Jan. 19 hearing was Jim Bauerle, vice president and legislative director of the Military/Veterans Coalition of Indiana. He called the lawmakers’ attention to the Military Lending Act (MLA), a 2006 federal law that provides special protections for active duty servicemembers, including a 36 percent cap on interest rates and other protections for most consumer loans.  

Bauerle, a longtime advocate for military members and veterans, maintained that the 36 percent cap proposed in Senate Bill 352 should include all fees associated with the loan. While acknowledging what he considers good intentions behind the bill, the veteran of the Vietnam War and Operation Desert Storm challenged lawmakers to do better for the most vulnerable in Indiana.

“I think you could do more,” said Bauerle, a member of St. Elizabeth Ann Seton Parish in Carmel, Ind., in the Diocese of Lafayette.

Despite the organized opposition, the bill passed the Senate on a vote of 27-22 just before the Indiana General Assembly reached “crossover” – the halfway point of the legislative session, when bills that are still active move from one legislative chamber to the other. The proposed legislation now awaits consideration in the House of Representatives.

Two related bills that the ICC and its allies had supported stalled in their respective legislative chambers and will not move forward. Senate Bill 253 and House Bill 1159 had sought to limit the payday lending institutions that currently charge consumers an APR of up to nearly 400 percent on the short-term loans that they offer. These bills would have restricted the APR on payday loans, also known as cash advances, to no more than 36 percent.   

Now, among the key priorities of the ICC in the second half of this short, non-budget-year legislative session is making sure that Senate Bill 352 does not advance in the House.

“Ultimately, our neighbors in need are at the heart of this,” said Alexander Mingus, associate director of the ICC, in a recent installment of the weekly podcast he hosts with Espada. “We don’t want to have another predatory loan product on the market.”

To follow this and other priority legislation of the ICC, visit www.indianacc.org. This website includes access to I-CAN, the Indiana Catholic Action Network, which offers the Church’s position on key issues. Those who sign up for I-CAN receive alerts on legislation moving forward and ways to contact their elected representatives.