INDIANAPOLIS, Ind. (June 2, 2016) -- On Indianapolis’ south side, there’s one corner with three payday lending locations.
That East Street corner isn’t the only one. In Marion County, there are 92 payday lending locations. That’s more than the number of Starbucks and McDonald's locations combined.
Hoosiers lose $70 million each year from high interest rates from payday loans.
Now, the federal government is looking to step in to curb some of the risky lending practices.
“It’s important to think about interest rates,” said Kelsey Clayton, Indiana Assets and Opportunity Network’s manager. “Those exorbitant levels of interest rate is not reasonable lending.”
Today, the Consumer Financial Protection Bureau is proposing a rule that would likely force payday lenders to decrease their interest rates or turn away customers.
Before making a loan, payday lenders would have to assess a borrower’s ability to pay back the loan and interest by the due date.
“Typically an individual that gets their paycheck in two weeks can’t afford that $317 loan to pay right back, so they’ll open another loan to really meet the basic necessities of their day-to-day life,” said Clayton.
The cycle of loans continues, with borrowers spiraling into huge debt.
The average Hoosier takes out a $317 payday loan and ends up paying about $400 in finance charges. Those fees, advocates say, take a big chunk out of the Indiana economy.
“It’s $70 million drained from our communities in Indiana,” said Clayton. “That money could be going to working families.”
U.S. Public Interest Group issued a statement today, supporting the rule, but also saying they believe it could go farther.
“While the CFPB rule does create such an affordability standard, the rule also allows for too many exemptions and leaves open too many loopholes for that standard to meaningfully reduce the harm of predatory lending.”
“A typical borrower only makes 30 thousand dollars a year, so these aren’t really to go on lavish vacations, it’s very much to deal with their day-to-day expenses,” said Clayton.
The rule isn’t final yet.
The public comment period is open until September 14. Then the bureau will make its decision.