Indiana Lawmakers Weigh Bill to Raise Payday Loan Borrowing Limits

Indiana lawmakers are reviewing a bill that would increase the amount payday loan lenders could provide, allowing Hoosiers to borrow more money through payday loans and other nontraditional financial establishments. The proposed legislation would permit lenders to participate in "supervised loans" and allow non-depository lenders to provide loans up to $25,000.

Currently, there is a cap of $825 on how much borrowers can access from payday lenders that comes with a minimum of a two-week repayment period. Rep. Jake Teshka (R-North Liberty), the author of the bill, said: "There is really no product in Indiana that's regulated in the middle for subprime borrowers."

The bill would also increase the maximum interest rate for loans from 25% to 36%. Additionally, it would allow lenders to impose monthly service fees on top of the interest already charged. Teshka added: "At 25 percent there are certain borrowers that these companies cannot underwrite, so there are certain loans that go unmade."

Bryce Gustafson, a former payday loan user, recounted his own experience with a payday loan and expressed concern that increasing loan amounts and adding service fees could further burden lower-income Hoosiers. He said: "If traditional banks aren't going to provide them the ability to get loans, then they are almost forced to this."

Erin Macey, director of the Indiana Community Action Poverty Institute, shares Gustafson's concerns. She said: "This idea that it's there to help make really expensive loans to struggling borrowers... that doesn't make any sense at all."

Teshka argues that there currently are no viable alternatives for borrowers with poor credit and low incomes. He said: "I would love for there to be another solution, right? But currently there just isn't one, and there is this huge gap in the marketplace."

The bill would also allow lenders to charge specific monthly service fees based on the principal amount. The breakdown of how those fees would work can be seen below:

• Principal Amount Up to $2,500: Lenders can charge a monthly service fee of up to 8% of the original principal amount.
• Principal Amount Between $2,501 and $4,000: The monthly service fee can be up to 6% of the original principal amount.
• Principal Amount Between $4,001 and $5,000: For this range, the monthly service fee can be up to 5% of the original principal amount.
• Loans must be between $5,000 and $25,000 and have a minimum term of 6 months.
• Lenders may charge specific monthly service fees based on the principal amount.
• They need to comply with limits on loan finance charges, which could not exceed 36% per year on unpaid balances, depending on the amount.

Teshka mentioned that lawmakers are considering additional amendments as the legislation awaits a committee vote.