New Report: Payday Lenders Drain Over $300 Million from Indiana’s Economy in 5 Years
In 2002, the Indiana General Assembly granted payday lenders a carve-out from our criminal loansharking cap of 72% APR, allowing them to charge up to 391% APR on small, short-term loans. Data released today in Financial Drain: Payday Lenders Extract Millions from Hoosier Communities demonstrates that storefronts run predominantly by out-of-state companies have used this exemption to drain over $300 million in finance charges from Hoosier households and communities over the past five years.
Here in Allen County, payday lenders operate 12 storefronts and have taken in an estimated $14,750,356 in finance charges on loans that are typically only $350. These loans are made to borrowers with a median income just over $19,000 per year. By lending to individuals who cannot repay the loan in full on its due date, lenders create a lucrative cycle of re-borrowing. The report shows that payday loan storefronts are disproportionately located in low-income neighborhoods and communities of color.
“We know that the average borrower takes out eight consecutive loans, illustrating the fact that the majority of borrowers do not get their initial need met, but instead get caught in a costly cycle of debt that leaves them worse off,” said Steve Hoffman, Brightpoint President/CEO. “Who would logically pay an average of 365% annual interest eight times on a loan if not caught in a debt trap?”
Over the past four years, members of the Indiana General Assembly have advanced dramatically divergent proposals related to this industry. Some, backed by the industry, have sought to expand payday lenders’ carve-out, allowing them to offer larger, longer-term loans, also at triple-digit interest rates. A coalition of veterans groups, faith leaders, community groups, and social service agencies – including Brightpoint – have proposed returning to the 36% APR cap Indiana had in place prior to the 2002 legislation.