Impacts of Payday Lending

In 2002, the Indiana General Assembly granted payday lenders a carve-out from the state’s interest rate caps and criminal loansharking law, allowing them to charge up to 391 percent APR on small, short-term loans. A new report co-authored by the Indiana Institute for Working Families and the Indiana Assets & Opportunity Network, titled Financial Drain: Payday Lenders Extract Millions from Hoosier Communities, reveals that predominantly 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. County-level financial drain estimates are available in Appendix 4.The report also shows:

  • Payday lenders accrue these finance charges on loans that average approximately $350 and that are made to borrowers with a median income of 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 reborrowing. In Indiana, 60 percent of borrowers take a new loan on the same day an old loan is repaid and 82 percent of borrowers take another loan within 30 days.

Indiana’s 262 payday loan storefronts are disproportionately located in low-income neighborhoods and communities of color, and 86 percent are licensed to out-of-state companies. Click here to read the full report.

Payday and predatory lending at exorbitant rates trap individuals in need in a cycle of debt and financial instability, which is a significant risk factor for multiple forms of violence. Additionally, survivors often describe financial insecurity as one of the most significant barriers that they face in their efforts to separate from an abusive relationship and to rebuild safe lives for themselves and their children. Payday lending makes it extremely difficult for survivors to gain independence, safety and security.

Alternatives to Payday Lending

Many organizations (including ICADV) offer alternatives to high-interest loans. If you or someone you know needs financial assistance, consider the following options:

  • Call 211 for referrals to organizations that may be able to help you with money
    assistance to pay necessary bills, referrals to groups that may help you with food and
    other necessities, and with financial counseling.
  • If you are a survivor of domestic violence, you may be eligible for direct cash assistance
    with necessities, small loans, matched savings and education-specific expenses. Call 1-800-538-3393 for referrals to
    these programs
  • If you are in the military service, a veteran, or a National Guard member, you may be
    eligible for a grant up to $2500 for necessities of daily living. Go to
    https://www.in.gov/dva/2329.htm for the application.
  • If you are a service member, veteran, or eligible dependent, you may be eligible for
    help with payment of necessary expenses from the Veteran of Foreign Wars (VFW)
    Unmet Needs Program. Call 1-866-789-6333, or go to:
    https://www.vfw.org//media/VFWSite/Files/Assistance/UnmetNeedsEligibilityCriteria.pdf
  • Ask your faith group or a local faith group for help. Many have programs to help dig
    people out of small debt and to help with other services, or even to extend small, much
    more affordable loans.
  • If you are employed, find out if your employer has a program to allow you to take an
    advance against your next paycheck.
  • If you are employed, find out if your employer has partnered with a Community Loan
    Center to loan you money at 18% interest, with 3% up front.
  • If you are 60 or over, or disabled, contact your local Area Agency on Aging, which may
    be able to help with health and support programs. To find your local agency, call 1-800-
    986-3505.
  •  If you need help with utility bills, fixing or replacing a furnace, child care, Head Start,
    matched savings accounts, home ownership, or with signing up for affordable health
    insurance, you may be able to get help from your local Community Action Agency.
    Call 1-800-382-9895 to find your local agency.
  •  Contact a local credit union to find out if they have payday alternative loans, running
    around 28% interest.
  • If you haven’t already, find out if your friends or family would loan you a small amount
    temporarily.
  • Use a credit card if you have one – their interest rates are significantly lower
  • Apply to banks for small installment loans at 36%.
  • After you have tried all other options, go to your local Township Trustee for help.

Ready to See Reform?

  • Spread the word by sharing this report with others and on social media. Want a presentation of the findings for your group or event? Let us know!
  • Sign this letter to the Indiana General Assembly calling for a 36% APR cap.
  • Share a story about how high-cost lending has affected you or someone you know.
  • Call or write your lawmakers and let them know you want to see reform

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