Policy Update: Payday Sees Another Defeat, but Indiana Congressmen Challenge Recent CFPB Rules

Indiana saw another close call on predatory lending in the General Assembly, but may face a challenge in Congress on loosening limits on prepaid cards. The payday lending industry attempted a late-in-the-game adjustment to Indiana’s uniform consumer credit code last Monday, March 20th. The language they proposed would have allowed lenders to charge a .395 percent daily “customary fee” to offset the cost of origination, ability-to-repay determinations, and so on. This could have been layered onto the 25 percent interest rate allowed under the statute, bringing the total possible APR up to 169 percent. This proposal was also unusual in that it was not within the statute governing small loans (a.k.a. payday loans), but instead was in the section of code that applied to all forms of open- and closed-ended installment lending. Fortunately, the amendment was not offered thanks to opposition from consumer advocates and members of the House committee in which it would have been heard.

Even without this new avenue, there are still other ways to slip hidden fees into financial products. National Consumer Law Center has written about a variety of prepaid cards, including payday lender prepaid cards, which charge overdraft fees.  Most prepaid cards are useful tools to control spending and stay out of debt: the consumer pays an up-front fee for the card and puts money on the card to spend or has her paycheck direct deposited on it. When the money is gone, the card no longer works. However, according to the Consumer Financial Protection Bureau (CFPB), about 2 percent of prepaid cards charge fees.

Last October, the CFPB issued a rule to provide consumers with up-front information about fees, allow them easy access to their account balances, provide fraud protection, and require prepaid card companies that extend credit to follow the same rules as credit cards. Although these rules to do not prohibit fees, they do proscribe the manner in which fees can be collected. Unfortunately, two members of Indiana’s Congressional delegation have signed on to an effort to block the rule. If you are interested in signing on to a letter asking them to protect the prepaid card rule, you can do so here.

Hidden fees can drag on Hoosiers’ efforts to achieve and maintain financial security. Vigilance and advocacy at the state and federal levels can save all of us from having to scrutinize the small print or face that “wish I had known” moment after the fact