Report Reveals High Cost of Indiana Payday Loans

Inside Subprime: October 23, 2019

By Grace Austin

A new report shows what price Indiana residents are paying for payday loans.

Payday lenders have paid $322 million in finance charges over the past five years. That’s according to the Indiana Institute for Working Families and the Indiana Assets & Opportunity Network, which released .

Payday loans are legal in the state, but were once more tightly regulated. In 1971, Indiana’s legislature introduced a loansharking statute >that made it a felony to charge an interest rate of more than 72%, or double the 36% annual percentage rate cap.

A 2002 exemption passed by the Indiana General Assembly allowed payday lenders to charge APRs of almost 400 percent. Under current law, borrowers can obtain a loan for 20 percent of their monthly gross income and up to $605, with finance charges that range from 15% of the first $250 to 10 percent for amounts over $400. The loan terms have to be at least two weeks, too.

There are several key points from the report. While online payday lending has grown tremendously throughout the country as many states crack down on short-term lending, there are still more than 250 payday loan storefronts across Indiana. Those stores are run by 29 payday lending companies, and five of those licensed entities operate a majority of them. On top of that, out-of-state companies operate more than 85 percent of those storefronts.

Three counties in particular are home to a third of all the storefronts in the state: Marion, Lake and Allen counties. More specifically, Indiana payday loan storefronts are concentrated in places where people of color and low-income people live.

And low-income people are also the ones taking out the most loans — the average borrower has an annual income of under $20,000 and is characterized as “working, but struggling to keep up with bills,” by the report.

The typical payday loan borrower also is prone to reborrowing — eight to ten times specifically. That means that they’re paying much more in fees than the original amount they took out. And those borrowers’ cycle of debt and payday loans is apparent: the report said 60 percent of payday loans are reborrowed on the same day that the previous loan was paid off, and 82 percent are reborrowed within 30 days.

“By lending to borrowers who cannot afford to repay the loan and still meet their other expenses, lenders can reap the benefits of loan churn,” according to the report. “Meanwhile, borrowers are more likely to experience overdraft fees, bank account closures, difficulty paying bills, decreased job performance, and bankruptcy.”

The Indiana Institute for Working Families also pointed to a poll indicating support of a 36% interest APR cap: nearly 90% of Indiana voters surveyed by Bellwether Research & Consulting said they support such efforts. Overall, 75 percent of voters say they wouldn’t want a new payday loan storefront opening up in their neighborhood. The statistics show that support for legislation is there — if only legislators can get behind such efforts.

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including Chicago, Illinois, Texas, and more.