For some time now we’ve been fighting along side Indiana Institute For Working Families to lower the interest rate cap on short term pay day loans.
Anyone with a social security check, or low paying job can borrow quickly and easily from one of the many pay day loan companies that operate here. The catch is they’ll pay a whopping 371 percent effective interest rate*. A rate that often saddles the borrower with interminable debt.
These loans harm the families we serve, keeping them forever in debt, and without proper funds for essentials—food for their families, clothing, shoes and rent. That’s why about 60 percent of borrowers must take out another loan to satisfy the one that has come due—taking out an average of 10 loans a year—constantly re-borrowing to pay off the loan now due. These borrowers are not being served, they are being abused by a system rigged for them to fail, setting them up for bankruptcy, and plunging them across that paper-thin line into poverty along with their families.
Our Indiana legislators have failed to pass a reasonable percentage rate cap for these lenders, and now there’s a move in Washington to sidestep even the interest rate caps that exist in other states. (Forty-three states and the District of Columbia cap the rate on a $500 six month loan at 36 percent.)
High-cost lenders are increasingly using rent-a-bank schemes with a small number of rogue banks, which are not subject to state interest rate limits. In business with them, pay day lenders are able to evade state rate caps on larger installment loans and lines of credit. These lenders pick and choose where they lend, generally avoiding states that vigorously enforce their laws. They target vulnerable communities, Blacks and Latinos, veterans, and seniors with aggressive marketing tactics. They are online, and advertise through social media and direct email ads as they geotarget communities of color. At least five of these companies are already operating in Indiana.
A fair lending alternative will never be able to survive while these sharks remain in the water. We have to set reasonable interest rates in Indiana and our nation. And when we do, these lenders will leave our city like rats on a sinking ship.
So I ask you, how long must we fight to get the hands of powerful money lenders out of the pockets of the nation’s poor? This is and always has been usury. It does and always has targeted those on the brink of poverty. We are and always have been responsible that this travesty continues in our state and nation. How long must we fight?
Nancy
*The ‘effective interest rate’ is the stated interest rate plus the fees required to take out a loan.
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