To update: The Indiana Senate narrowly passed a measure Tuesday that would allow payday and subprime lenders to charge small loan interest rates at levels currently classified as a felony.
The Senate 26-23 voted in favor of Senate Bill 613. The bill is backed by payday and installment loan businesses, which argue that it gives consumers more options. It goes now to the house.
The vote came just hours after the Senate shot down another loan measure, Senate Act 104. It would have capped interest rates, including payday loans, at 36 percent. The bill’s defeat was a huge blow to more than 60 consumer protection groups – including charities, veterans’ organizations, and churches – who view high-interest loans as predatory.
Before: The Indiana Senate stands ready to vote Tuesday on a measure that would allow payday and subprime lenders to charge small loan interest rates at levels that are currently classified as a felony.
The payday loan industry has been pushing for similar laws for the past three years, but it has been rejected amid concerns from social services and others who view such high interest rates as predatory.
But this year’s legislation is heavily supported by another group: subprime lending companies that specialize in installment loans with interest rates close to 100 percent.
That’s far more than the 72 percent rate that Indiana law currently defines as a felony. Payday lenders can offer higher interest rates, but only for smaller loans with shorter terms.
Installment loan companies in other states have been scrutinized for high pressure loan renewal tactics and aggressive debt collection efforts. They are currently limited in what products they can offer in Indiana. As a result, many do not work here.
Senate Act 613 could change that. Two new types of credit allowed under the bill are the most controversial.
- Loans ranging from $ 605 to $ 1,500 for six to 12 months with annual percentages of up to 192 percent. These loans would be offered by payday lenders such as Advance America and Check Into Cash.
- Installment loans of up to $ 4,000 with negotiable terms of up to four years and interest rates of up to 99 percent. These loans would be offered by installment loan companies like Security Finance and Eagle Finance.
These proposals were tabled in a 69-page amendment on Thursday at the eleventh hour on the Senate Committee on Commerce and Technology. The committee voted in favor, along the party lines.
The legislature taking the bill, Senator Andy Zay, R-Huntington, said it would “build a bridge” for borrowers who do not qualify for traditional bank loans.
“We’re trying to give people the ability to move from sub-prime lending to bankability to build their credit,” he said.
But a coalition of more than 60 groups – including social services, veterans’ organizations, and religious groups – argues that such loan programs do just the opposite.
Matthew Gaudin, an associate attorney at the Neighborhood Christian Legal Clinic, said his organization is often helping low-income Hoosiers through bankruptcy after high-interest loans added to their financial plight.
“Many are looking for payday loans as a potential solution to their mounting debt problems, but find that it doesn’t give them the respite they want,” he said. “Often times, getting caught in a payday loan cycle makes problems worse.”
The payday loan industry has pushed for the first part of the bill for each of the past three years, but those moves have made no headway in the face of public outrage. This year they again hired several top lobbyists at the Statehouse, including former Republican lawmakers Matt Bell and Matt Whetstone.
But the lobby firepower behind the bill is even greater this time thanks to the role of the installment loan companies.
One of the companies pushing for legislation is Security Finance, a South Carolina-based company with more than 900 offices in approximately 20 states. The lender hired influential Indianapolis lobbyist Jim Purucker – whose clients include casino, tobacco, and liquor interests – to push his interests through at the statehouse this year.
Security Finance faced legal challenges and regulatory issues.
In 2004, an Oklahoma jury awarded $ 1.7 million in damages to a mentally retarded man after Security Finance and an affiliate extended his loans 37 times over 4 years. A company employee even picked the man up from a homeless shelter and took him to the office to make his payment, the lawsuit says.
In 2011, a 66-year-old widow in Texas filed a lawsuit against the company after she said it harassed her with more than 100 phone calls and house calls. The ordeal began with a $ 200 loan that the company renewed 16 times, eventually costing the woman, who was living on Social Security, nearly $ 2,000. The company has settled the lawsuit for an undisclosed amount.
Recently, in June, the Federal Consumer Financial Protection Bureau fined Security Finance’s parent company $ 5 million for aggressive debt collection tactics and reporting false information to credit bureaus. According to the bureau, the company’s humiliating and harassing debt collection efforts included disrupting consumer jobs, threatening to jail, rushing, or physically preventing them from leaving the house and borrowers in the middle of a grocery store through drive-through windows face in fast food restaurants and in line at a big box vendor.
Security finance officials did not respond to phone calls for comment on this story. Purucker declined to comment. Another lobbyist for a coalition of installment lenders, including Security Finance, didn’t answer either.
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But Brian Burdick, a lobbyist for the payday loan industry, told the Senate Commerce Committee that the legislation would bring a spate of new high-yield lenders to Indiana, creating competition that could help lower interest rates.
“I think you will have massive competition if you pass this where there is no competition today which will help bring costs down,” he said.
The bill is now on a collision course with another measure, Senate Act 104which would do almost the exact opposite – limiting payday loans to annualized percentages of 36 percent. The move could effectively wipe out the payday loan industry in Indiana.
Proponents of this proposal complained bitterly about the short-term nature of Thursday’s proposal to expand high-yield credit, finding they had little time to digest it. The Democrats wanted to investigate the issue further.
However, Commerce Senate Chairman Senator Chip Perfect, R-Lawrenceburg said the success of payday loan opponents in calling for the interest rate cap was a factor in his decision to back Thursday’s short-term proposal to expand high-yield credit.
“Unfortunately, this doesn’t happen in a vacuum,” he said. “Honestly, the fact that this bill has passed makes me feel that it is not appropriate to ask for a summer study at this point, until we look at it together.”
Both bills are on the Senate’s calendar on Tuesday – the last day the bills can leave this chamber before moving into the House of Representatives.
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