An Indiana Senate committee rejected proposed changes to a financial industry bill Thursday after advocates for struggling working families and veterans warned that the changes would have saddled people who take out small payday loans with exorbitant interest rates.
The Senate's Insurance and Financial Institutions Committee voted 6-2 to defeat an amendment that would have allowed payday lenders to offer six-month loans of up to $1,000 at an annual percentage rate of 180 percent. Current state law caps interest rates at 36 percent for installment loans under $2,000.
After rejecting the amendment, the panel unanimously approved the bill's existing language calling for a legislative committee to study lending issues over the summer. Committee chairman Sen. Travis Holdman, R-Markle, said after the hearing that lawmakers "need to stand back and take a look at this."
Jabo Covert, a vice president of Check Into Cash, had urged the panel to approve the amendment, saying the payday loan industry expects the Consumer Financial Protection Bureau to soon issue "very stringent regulations" targeting the industry. He said those new rules could prohibit his company, which has 66 outlets in Indiana, from making most of the loans it currently makes in the state.
"You're talking about millions of dollars of capital which would not be available in the Hoosier state. It will be a very confusing situation for the companies and for the customers," he said.
Payday loans are typically taken out by people who've run out of money between paychecks to tide them over until their next paycheck. Those people often have poor credit that prevents them from obtaining traditional loans with lower interest rates.
Indiana Catholic Conference Executive Director Glenn Tebbe told the committee that payday loans with high interest rates "trap" financially stressed people and families in a cycle of debt they cannot easily escape by requiring them "to pay more than what we believe is reasonable for repayment of debt."
"We believe this amendment really is not in the best interest of these families and these people," he said.
Lisa Wilkens, the legislative director for AMVETS Indiana, said payday lending businesses "are outside of every military installation" and are often patronized by veterans in financial straits.
"Our military men and women unfortunately find themselves forced into a paycheck-to-paycheck mentality and we want to make sure that our veterans and especially our disabled veterans are not taken advantage of," she said.
Jim Bauerle of the Military Veterans Coalition of Indiana urged the panel to reject the amendment so lawmakers can spend the summer working to get "a deeper understanding of this issue."
The bill originally contained provisions opponents said would have been even more harmful to people who take out such loans, but the measure was rewritten to take its issues to a summer study committee. The House approved that version Feb. 2 on a 95-1 vote, sending it to the Senate for consideration.