INDIANAPOLIS  – Despite a new poll showing that nearly nine in 10 Hoosiers want payday loan reform, the General Assembly had been pushing forward with new a predatory loan product. 

When the Indiana Institute for Working Families set its 2018 legislative agenda, we focused on modest and achievable policy solutions that would right the ship for Hoosier families who are underwater financially: Make sure pregnant women in physically-demanding jobs can continue to work safely, because many lack sick days or family leave. Take small steps to fix problems with our nutrition assistance and TANF programs. Get more kids into prekindergarten classrooms and adults into educational programs that lead to higher-paying jobs.

Many of the bills we hoped to see advance never received a hearing have died. And Instead, there’s momentum on a different “solution” for struggling working families: bigger, longer payday loans. 

Indiana is one of several states that crafted a payday loan law in the early 2000s. Payday lenders were given a limited exemption from our criminal loansharking law to make two-week loans under the premise that these loans would be expensive to make due to their short-term, one-time nature. However, research is now clear: these loans, which top out at 391% APR, are almost never a two-week, emergencies-only deal. Instead, lenders target families they know won’t be able to pay the loan back and still afford their other expenses, thereby creating a steady stream of repeat customers. In fact, the typical borrower takes 8-10 loans in a year, paying more in fees than she originally borrowed. 

Hoosiers clearly understand the problems with this business model. In a January 2018 Bellwether Research & Consulting poll, 84% of Indiana voters characterized payday loans as more harmful than helpful. Nearly nine in ten expressed a desire to see them capped at 36% APR, even after hearing pro-industry arguments. This is consistent with other polls across the country showing that both the public and payday borrowers want to see more reform and regulation of this industry. 

Instead of listening to Hoosiers, the Indiana House has voted to give payday lenders a new product line. HB 1319 increases the amount of money payday lenders can offer and lengthens loan terms up to one year. If this bill becomes law, a family bringing home $16,000 a year could qualify for a $1,500, one-year loan, paying $1,598 in fees along - more than a month’s take-home pay. 

This bill died in the Indiana Senate on Wednesday.  

In discussions with lawmakers, we have heard all manner of good intentions expressed: We need to ensure that families can build credit, solve transportation challenges, increase financial literacy, heat their homes, and pay their bills. We absolutely agree that these are problems that need to be addressed. But expanding loans that are known for driving borrowers into a stressful spiral of debt that can end in bankruptcy or homelessness is like selling the boat to buy its fuel. Righting the ship for families requires policies that address the root causes of financial difficulties. 

Did I mention we have a policy agenda for that?  

Erin Macey, PhD., is a policy analyst for the Indiana Institute for Working Families.