36% APR Cap More Essential Now Than Ever
On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) gutted a proposed protection against predatory lending, leaving Hoosier families exposed to the harms of payday lending. The 2017 Payday Rule, which was finalized but did not take effect, would have required that lenders verify a borrower’s ability to repay a loan before issuing it. The CFPB issued a final rule without ability-to-repay requirements.
“Struggling Hoosier families need real assistance – not loans they cannot afford at unconscionable interest rates,” said Jessica Fraser, Director of Indiana Institute for Working Families. “Today’s move by the Consumer Financial Protection Bureau to gut the payday rule by stripping the ability-to-repay requirement will not only be devastating for families, it will ultimately hurt us all.”
Organizations and individuals throughout the state of Indiana have called on state and federal lawmakers to pass an interest rate cap of 36 percent or lower on small dollar loans, which has effectively protected residents of 16 other states and military service members from the payday debt trap.
Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights, issued the following statement on the Consumer Financial Protection Bureau’s (CFPB’s) final rule on payday and car-title lending:
“How shameful that at a time when COVID-19 has killed at least 130,000 people in America and caused economic turmoil on a scale we have not seen since the Great Depression, the CFPB’s priority is filling the waters with loan sharks.
“The truly immoral decision to undo consumer protections at this time threatens to devastate communities of color that, as is typical in these crises, are already facing the worst fallout of the pandemic. To do so based on junk research is even worse.
“These communities need more, not fewer, CFPB protections now. If the courts do not promptly strike down this gift to predatory lenders, then Congress needs to step in and impose better protections.”
In 2002, the Indiana General Assembly granted payday lenders an exemption to Indiana’s loansharking law, which makes it a felony to issue loans at or above 72 percent APR.
Under current Indiana law, payday lenders can loan out up to 20 percent of a borrower’s income up to a cap of $605 and these loans can reach up to 391 percent APR.
Payday lenders in Indiana have drained over $300 million in fees from Hoosier communities over the past five years. The median borrower income is estimated to be just over $19,000 per year.