Indiana Organizations Share Concerns About Senate Consumer Loan Bill | Messages

SOUTH INDIANA — A bill passed by the Senate on Feb. 1 has drawn strong criticism from a coalition made up of 97 groups across the state.

Senate Bill 352 aims to make changes to Indiana’s Uniform Consumer Credit Code regarding regulated consumer credit. The changes have various stakeholders concerned about the impact on low-income individuals in the state.

Under the bill, now before the House of Representatives, loans made in accordance with the amendments will be exempt from the loan raking laws specified in the Indiana Code.

The Code describes someone who commits loan raking as “a person who, in exchange for the loan of a property, knowingly or intentionally receives or contracts consideration from another person at more than twice the stated rate.

According to Indiana Community Action Poverty Institute senior policy analyst Andy Nielsen, the offense is a Level 6 felony in the state and applies to all loans except payday loans.

Habitat for Humanity State Director Indiana Gina Leckron wondered how the state could justify the exemption from loan raking laws for these specific consumer loans.

“We don’t think there is a need to change this existing law. Why can’t they operate within the confines of the existing loan harking law? And if they can’t, the question becomes, should this be allowed when it’s currently illegal?” she said.

Nielsen said it’s not surprising that lenders wanted to be exempt from the law, saying it would be easier than cutting interest rates and fees.

“[The bill] sets a 36% interest rate and a 13% interest rate on the original balance of the loan, and then it also charges an underwriting fee of up to $50 over $400. For a 4-month $400 loan, the APR is [annual percentage rate] could be 315%,” he said.

Habitat for Humanity and the Indiana Community Action Poverty Institute are two of 97 members of the Hoosiers for Responsible Lending coalition opposing the law.

According to Leckron, Habitat for Humanity customers could be severely impacted by this bill. The nonprofit organization helps low-income individuals build their own homes and make a monthly mortgage payment of 0% interest.

“We believe this is a real threat not only to our existing homeowners but also to our applicant families. Because we’re dealing with people who make up between 30% and 60% of the median income,” she said, “it feels like it’s targeting our core customers squarely,” Leckron said.

Before customers move into the new homes, Leckron says they go through financial literacy classes that teach them about the downsides of this type of loan.

New Albany Floyd County Habitat for Humanity executive Jerry Leonard said they try to offer their new homeowners all the resources necessary to make responsible financial decisions.

In the financial literacy courses, Leonard said, they teach clients how to create and follow a budget. Leonard tries to contact clients once a month before they move in to see how the budgeting is progressing.

However, for low-income individuals, an issue could set them back significantly in terms of their finances. Leonard gave several examples of people who could easily be put in a position to make rent or mortgage payments or pay for their car to be repaired.

Leckron said it can feel taboo or embarrassing for individuals to talk to other people about their financial woes.

“It seems easier to go to these outside people, but if you do that, if you don’t read what’s in that contract in full, you end up with a devastating decision,” she said.

One rationale for this bill, which Nielsen has heard, is that it will increase competition in the consumer loan market, although he doesn’t agree that will be a result.

“Subprime borrowers don’t have many options. It’s not like they’re going to the market and poking around like people who might have better credit… Whatever the market and those prices are offering, that’s really their only option,” he said.

When someone is in distress or distress, people don’t think with the most reasonable assumptions, Nielsen said.

Because these borrowers often don’t have the resources to shop around for different loans, Nielsen says lenders often charge the maximum amount allowed by law.

“If a buyer, or in this case a borrower, has only one option, it cannot be expected to actually encourage competition,” he said, “[Lenders] will charge up to the amount permitted by law, and we have some data to back it up, because that’s what payday lenders are doing now.”

“On [an] On average, they charge up to the legal limit, like to the cent,” Nielsen said.

The bill has been referred to the House Financial Institutions and Insurance Committee for review before it has its say.

District 72 Rep. Ed Clere said he couldn’t see voting in favor of it now that the bill is in place.

“These products are aimed at people who are struggling financially and don’t have good options,” he said.

“I would like the discussion to turn to how government can help people get out of the cycle of high-interest debt and live paycheck to paycheck. I would like there to be a focus on financial literacy, budgeting, self-sufficiency, saving and investing, reducing debt, things that would help people break the cycle,” Clere continued.

Nielsen also spoke on this cycle, noting that credit cannot be built without having credit.

“If you come from a household where you’ve never had anyone who could co-sign a loan for you or co-sign a credit card and you also have generational issues we see because we know that loans are disproportionately offered in communities of color,” he said.

Because of the way these credits disproportionately affect communities of color, Nielsen said more racial justice is needed with these policies.

“It’s a self-fulfilling well cycle: are borrowers risky because they don’t have good credit, or are they risky because the loans they’re offered are never affordable?”