INDIANA – Payday lenders drain over $29 million in finance charges from Hoosier borrowers annually on loans that average $386, according to a new report released today by the Indiana Community Action Poverty Institute. This report is an update from a previous report released in 2019.
“Payday lenders drain millions from Hoosiers, their families, and their communities every year,” said Andy Nielsen, Senior Policy Analyst at the Institute. “Payday loans are inherently flawed: they violate anything close to a true borrower-creditor relationship in exchange for a one-sided agreement that fuels a debt trap for vulnerable borrowers. Lawmakers have the power and the obligation to create a credit market in our state that is fair, responsible, and equitable. We hope this report will inform that conversation in the future and create a framework that works for all Hoosiers.”
Payday loans are high-cost, small-dollar loans with payments and fees due in full when a borrower receives their source of income. Effective January 2023, the maximum payday loan increased from $605 to $715, and lenders can charge rates as high as 391% Annual Percentage Rate (APR). In 2002, legislators granted payday lenders an exemption to Indiana’s 72% APR criminal loansharking law. Lenders do not assess a borrower’s ability to repay the loan by considering other debt payments or expenses and are not required to report payment or credit data to a credit bureau.
As the report shows, Indiana saw a precipitous drop in loan volume during 2020, likely due to robust federal support in response to the COVID-19 pandemic. Since the expiration of important federal supports such as the expanded Child Tax Credit, additional unemployment insurance, and rental assistance, payday loan volumes are trending toward their pre-pandemic levels.
For years the Institute, in partnership with the Indiana Assets & Opportunity Network and Hoosiers for Responsible Lending, has advocated for a 36% APR rate cap on payday loans. In 2021, Hoosier borrowers would have saved over $26 million in finance charges at 36% APR versus current law.Â
