Indiana senators voted 26-23 in favor of a bill that would allow payday lenders to charge interest rates on small loans at levels currently classified as felony loan sharking.
Carrying the bill is Sen. Andy Zay, R-Huntington, who said the bill is designed to “bridge the gap” for Hoosiers with subprime credit scores and living debt free.
He said the bill will help Hoosiers with credit scores below 550 and people who would otherwise be turned down for bank loans.
“There’s a big gap between payday lending and traditional consumer finances,” he said. “Banks and credit unions cannot fill this void, because over the last 50 years we’ve created more standards and laws in an attempt to keep them as viable entities in communities.”
He went on to say that those laws holding banks accountable prevent them from being an accessible service to subprime borrowers.
The bill has come under scrutiny, though, from both nonprofit groups and other lawmakers.
According to a report from the South Bend Tribune, Bill Rieth, executive director of the United Way of Elkhart County, said they often work with families facing heavy amounts of debt, and a bill advocating for payday lending interest rates would exacerbate the cycle of debt those families often face when borrowing small payday loans.
While Senate Bill 613 passed the Indiana Senate, lawmakers authoring an opposing bill were shot down. Senate Bill 104 would have capped interest rates on small loans at 36 percent, while Zay’s Consumer Credit bill replaces “the 25 (percent) loan finance charge authorized for consumer loans with a flat charge of 36 (percent) per year on the unpaid balances.”
But Zay said the bill’s passing in the House of Representatives would create competition in an otherwise monopolized industry.
“It’s over a billion dollar industry in Indiana, and (this bill) is a way to take a big entity and try to break it down into multiple options,” he said. “I think it’s going to create more competition in the marketplace and drive rates down.”
Zay said he’s optimistic the bill will be well received in the House. It went to its first reading with the House Committee on Financial Institutions on Thursday.