Indiana Senate bill seeks to limit interest rates on small loans

INDIANAPOLIS (WPTA21) – A bill making its way through Indiana’s legislative process seeks to change finance charge limits on small loans.

Senate Bill 104 would prohibit giving a small payday loans with a higher rate or amount of interest than permitted by state law.

The Federal Trade Commission has said that many consumers in need of cash are quickly turning to payday loans, short-term, high-interest payday loans typically due on the consumer’s next payday.

The FTC has said that in these types of loans, a borrower writes a personal check for the amount they want to borrow, as well as the fees they have to pay to borrow.

The loan is due on the next pay day. The FTC said the fees on the loans can be a percentage of the face value of the check or based on increments of borrowed money.

These can get expensive. The FTC gave the example of a $ 100 loan for two weeks. The borrower writes a check for $ 115, which the lender holds. When the bill comes due, the loan pays the $ 115 or renews the loan for an additional $ 15 fee.

The FTC said the cost of the initial loan of $ 100 would be a finance charge of $ 15 and an annual percentage rate of 391%.

A tax note filed Thursday said the bill would change finance charge limits on small loans at an annual rate of 36%. Currently, applicants can borrow up to $ 605 for two weeks at 20 interest. This would represent an annual rate of up to 391 percent.

The Indiana Institute for Working Families applauded the bill, saying vulnerable families should be protected from these types of loans, which they call predatory.

“It’s very clear that there is a perverse incentive in this model,” said Erin Macey of the Indiana Institute for Working Families. “Borrowers who don’t have enough money to meet their basic needs make better targets than those who do.”

The 36 percent rate cap is the same one passed in 2006 by Congress limiting interest rates for active-duty military personnel and their families.

“If it’s good enough for our active military – the people who protect you and keep you from danger day in and day out – it should be good enough to protect citizens,” said retired Brigadier-General Jim Bauerle of the Indiana Veterans Coalition Army.

The bill was passed by the Senate Insurance and Financial Institutions Committee by 6 votes to 2. It will now move to the Senate floor.

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