A report released today says payday lenders drained over $300 million in financing charges from some of the poorest Hoosiers over the past five years. The Indiana Institute for Working Families conducted the research and found that most of Indiana’s payday loans storefronts are in predominantly low-income neighborhoods.
Director Jessica Fraser says borrowers often get caught in a costly cycle of debt.
“We know that 60 percent of Hoosiers take out another payday loan on the same day that they pay theirs off, we know that by a month out from the payday loan it’s about 80% have taken out another payday loan,” Fraser says.
Fraser says Indiana has a 36 percent interest rate cap on regular loans. But lenders can charge fees that double the interest rate before breaking the state’s loansharking law. Legislators carved out an exemption for payday loans, which means their rates are even higher, topping out at 391 percent.
Fraser says if those exemptions weren’t in place over the past five years, Hoosiers could have saved hundreds of millions of dollars.
“If we in a hypothetical world were able to refinance this debt at 36 percent how much could we save families? Startlingly it’s $291 million dollars,” she says.
Fraser says the Institute for Working Families will continue to push state lawmakers to take on payday lenders next year. A controversial lending bill that would have created a new type of loan with annual percentage rates of up 167 percent died during the 2019 session.