INDIANAPOLIS – Capping interest rates on Indiana “payday” loans at 36% Annual Percentage Rate (APR) could have saved Hoosier borrowers more than $26 million in 2021, according to a recent analysis released by the Indiana Community Action Poverty Institute.
Loans during that period averaged just $386 but payday lenders collected over $29 million in finance charges.
“Payday lenders drain millions from Hoosiers, their families, and their communities every year,” said the report. “Payday loans are inherently flawed: they violate anything close to a true borrower-creditor relationship in exchange for a one-sided agreement that fuels a debt trap for vulnerable borrowers.”
Nielsen called for lawmakers to step in and better regulate the small loans market to protect low-income Hoosiers who might utilize payday lenders.
The analysis criticized lenders, many of which are headquartered out of state, for taking money out of local economies and luring Hoosiers into “a debt trap.”
“Because of a lack of strong consumer protections, financially vulnerable Hoosiers are threatened by a system that pulls them in and keeps them there — a cycle that they will likely struggle to leave,” the report said. “Consumer-friendly policies that prevent a debt trap and provide more affordable credit through strong rate caps would have a demonstrable impact on our state and the lives of Hoosiers.”
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