Senate Introduces CRA Resolution to Overturn the CFPB's Federal Payday Rule

Late last year, a bipartisan group of lawmakers introduced a joint resolution under the Congressional Review Act to override the Consumer Financial Protection Bureau’s (CFPB) federal payday rule. Since its introduction, Rep. Hollingsworth [IN-09], Rep. Banks [IN-03], and Rep. Messer [IN-06] have co-sponsored the bill.

Just last week, Senator Lindsey Graham (R-SC) introduced a bill in the Senate that would, likewise, nullify protections for payday loan borrowers by repealing the rule. The rule requires payday and car title lenders to assess a borrower’s ability to repay before issuing a loan or issue a limited number of loans without assessing a borrower’s ability to repay. This is a common sense measure that is designed to protect people from being trapped in the high-cost loans that characterize the payday and car title industries.

The rule, which was finalized last year and is set to go into effect in August of 2019, already appears to be in jeopardy in the hands of CFPB Acting Director Mick Mulvaney, who announced that the Bureau would reconsider the protections. 

Polling data shows that 78% of Hoosiers support an ability to repay requirement and earlier this year, at the request of advocates, the Indiana Senate rejected a measure to expand payday lending in Indiana. Congress has until early May to overturn the Payday Rule.

There are a number of ways you can support common sense payday loan reform, including:

  • Calling Senators Donnelly (202-224-4814) and Young (202-224-5623) to remind them that 78% of Hoosiers support an ability to repay requirement and that Hoosiers can't afford high-cost debt traps (if borrowers can afford to repay loans, then, lenders have no reason to oppose the Payday Rule);
  • Joining the Network Thurs., Apr 19 6:30-8:00 PM for a film screening and panel discussion on payday lending and local reform strategies; and
  • Adding your name or organization to the Network’s Payday Rule Sign On Letter.

"Rent-a-bank" arrangements could allow banks to make predatory loans

In the Statehouse, the House narrowly passed HB 1319 to allow payday lenders to offer installment loans at up to 222 percent APR. This bill will be heard March 1st in the Senate Commerce and Technology Committee. We anticipate that the Senate will change the bill in some way to bring the APR down, but that it will still exceed Indiana's criminal loansharking cap of 72 percent APR and will allow lenders to secure access to borrowers' bank accounts, creating a disincentive for lenders to assess a borrower's ability to repay the loan and still meet other financial obligations. There has been talk of amending the bill to look more like the small loans law in Colorado, but a recently-released report indicates that Colorado's reforms are still trapping borrowers in high-cost loans with substantial default rates. Advocates in Colorado are currently seeking a rate cap of 36 percent on small loans.

Lawmakers in the Senate—including President Long—have mentioned the attention given to the issue and the calls from their districts to vote no on the bill. This had led several to commit to voting no, even on an amended bill. Please keep the pressure on, reminding them that Indiana already allows small installment loans that can reach 71 percent APR. We don't need to loosen this law any further. Letters to the editor and local news stories about better alternatives are also helpful. 

All of the hard work we have been doing to hold the line on Indiana's rate caps and usury law will be for naught if a bill that just passed the U.S. House of Representatives—HR 3299—passes the Senate. HR 3299 would allow banks, who are not subject to state rate caps and usury laws, to partner with non-bank finance companies in "rent-a-bank" or "rent-a-charter" arrangements. Typically, federal oversight prevents banks from making risky, high-cost loans. However, if banks can make the loans but quickly transfer ownership to non-bank finance companies or debt collectors, they may be able to skirt these rules and guidelines. Here's how your House member voted on HB 3299. Please let Senators Donnelly and Young know that they should not allow lenders to circumvent Indiana's rate caps and usury laws in this way. 

Payday lending battle heats up at Indiana Statehouse

For nearly everything we consume, we rely on regulatory agencies to tell us what's safe and what's not. These regulations serve our needs and interests as consumers. Yet the past weeks have been rife with attempts to chip away at consumer protections on both the federal- and state-level. This is the continuation of a worrisome trend to end safeguards for vulnerable consumers.

At the federal-level, there has been action to fundamentally reform the Consumer Financial Protection Bureau, following the resignation of former Director and Obama-era appointee Richard Cordray and the appointment of the Bureau's (contested) Acting Director, Mick Mulvaney (here's a tally of what actions the Bureau undertook since Mulvaney's appointment.) Most notably, the Bureau announced it would engage in a rule-making process to reconsider its Payday Rule, which requires payday, auto-title, and certain high-cost installment lenders to determine a borrower's ability to repay before issuing a loan. The announcement comes after the Bureau added language to its description of responsibilities, including "identifying and addressing outdated, unnecessary, or unduly burdensome regulations."

At the state-level, lawmakers are entertaining two bills—HB 1319 and SB 416—that would create predatory lending products with triple-digit APR. HB 1319, which passed the House Insurance and Financial Institutions Committee on January 24, would authorize a new, longer-term installment loan product from payday lenders that would carry interest rates up to 222% APR. Indiana currently defines felony criminal loan sharking at 72% APR; however, HB 1319 exempts finance charges from the APR calculations, effectively, legalizing criminal loan sharking in the state. 

At the hearing, veterans' coalitions, faith communities, and charitable and community groups testified in opposition to the bill. "The bill before you is not reform . . . It is a request for extreme loosening of Indiana's current installment loans that reach 71% APR. 72% APR is criminal loan sharking. What you are here today to decide is whether or not to legalize what is currently considered to be felony loan sharking," Erin Macey, IIWF Policy Analyst and Network leader, testified before the committee.

SB 416, which is expected to be assigned to a summer study committee, would allow banks, credit unions, and non-traditional lenders to skirt the criminal loan sharking statute and raise interest and fees on many types of consumer credit products. SB 325, a bill pioneered by Network co-lead organizations Prosperity Indiana and Indiana Institute for Working Families, caps APR at 36%—the rate the U.S. Department of Defense secured to protect active duty military members; as have 15 other states to protect borrowers from usurious loans.

Tax Cuts & Jobs Act Passes the House and the Senate

It's been a tumultuous couple of months for tax bill writers and constituents alike. As lawmakers hurriedly drafted legislation behind closed doors, many Americans were biting their nails at the predicted impact the bill would have on their livelihoods, including possible tax hikes over the life of the Senate’s bill and cuts to vital public benefits programs in both House and Senate versions of the bill.

After passing their respective tax bills, which analyses demonstrate constitutes the greatest transfer of wealth from the working- and middle-classes to the wealthy in the nation's history, the House and Senate needed to reconcile their bills’ differences in a conference committee. The conference committee reconciled many issues, including the tax rate of "pass-throughs", individual tax rates, the child tax credit, the mortgage interest deduction, the medical expense deduction, the education deduction, the estate tax, and Obamacare's individual mandate. A majority of House and Senate conferees signed off on the reconciled bill Fri., Dec. 15. 

The conference committee’s negotiations resulted in some improvements to earlier versions of the billthe medical expense deduction, the student loan interest deduction, and the deduction for educators' classroom expenses were preserved in the final bill, for example. However, the final bill, at its core, remains deeply problematic because it explodes the federal deficit and justifies that explosion by cutting vital services that millions of Americans rely on. Seventy (70) percent of Americans will utilize a program like Medicaid or the Supplemental Nutrition Assistance Program (SNAP) at some point in their lives, underscoring the fiscal and moral recklessness of this bill. 

The tax bill will have repercussions on working- and middle-class Americans for decades to come. It's all hands on deck to resist further attempts to exacerbate wealth inequality.

Turning the tax code "right-side up": the wealthiest shouldn't take home an outsized share

Those of us who support asset development for low-wealth individuals and communities know that tax reform is needed. Each year, tax incentives support wealth development through homeownership, higher education, and retirement savings – but often, the bulk of these incentives go to those who need them least. This drives wealth inequality. For shared, broader prosperity, we need to turn the tax code right-side up.

What’s terrifying, then, is that the proposed tax plan takes an upside-down tax system and makes it worse. Analyses (herehere, and here) of the Senate Plan suggest that it would raise taxes on the lowest earning Americans while the top earners will receive a tax cut. Among those getting money back, the wealthiest take home an outsized share. Meanwhile, 13 million will lose insurance coverage and many more will face rising premiums through repeal of the Affordable Care Act’s individual mandate.

But these increases for the working class and cuts favoring the wealthiest among us are just the first step. Next, President Trump and Congress will look to the coffers of programs that support low- and moderate-income families to pay for these cuts. Will our already-substantial CCDF waitlist of 14,663 children grow? Will the 642,000 Hoosiers who currently rely on the Supplemental Nutrition Assistance Program see their average benefit of $117.90 per person per month decrease? Will we see cuts to Pell Grants, housing assistance, Medicare and Medicaid?

It’s not too late to make your voice heard. Call Senator Young and Senator Donnelly to let them know your thoughts on the tax plan. Capitol Switchboard: (202) 224-3121.

Mandatory Arbitration Clauses and Consumer Impact

You have probably signed one. Not too long ago, I signed one while securing a car loan. "I don't want to sign this," I said, when I saw the page titled "arbitration clause" laid down in front of me. "Is this negotiable?" "No," the loan officer responded, before assuring me that it would just make any disputes quicker and easier to resolve. 

Quicker and easier for whom? Arbitration clauses have been slipped into the contracts for many financial products and services—credit cards, payday loans, even the recent Equifax credit monitoring service offered in the wake of the data breach—and these clauses limit consumers' options for addressing legal issues with their providers by requiring that the matter be addressed with a private arbitrator rather than in the courts. Meanwhile, a report from the PEW Charitable Trusts demonstrates consumers' belief in fair reconciliation of consumer disputes. They found that 95 percent of consumers said they should have the right to have their cases decided by a judge or jury while 89 percent supported consumers' right to participate in group lawsuits. Group lawsuits are important as many individuals will not pursue relief on their own, especially when the harms are small yet often repeated many times over. Arbitration clauses are also tucked into employment agreements, making it more difficult to bring discrimination or wage and hour cases forward.

The Consumer Financial Protection Bureau recently issued a rule to ban mandatory arbitration clauses for financial services. Opponents of the rule argue that consumers receive greater relief in arbitration, winning on average $5,389 as opposed to an average of $32 in class action lawsuits. However, these statistics ignore the reality that only consumers with significant damages pursue relief through arbitration and very few win. According to a CFPB study, millions of consumers obtain relief through class action lawsuits each year while many fewer (some reports estimate as few as 20 people annually) receive relief in arbitration.

The House has already voted to roll back the CFPB's rule (see how your lawmaker voted here), and the Senate may vote to do the same early next week. If you believe, as I do (and many others, including these 400+ college professors) that class action is an important tool to deter financial institutions from mistreating consumers and to provide relief when they cause harm, please let Senators Donnelly and Young know they should vote "no" on S.J. Res 47. Capitol switchboard: (202) 224-3121.

The long road to racial wealth equity

Twelve times. That's how much higher the wealth of white families is compared to black families. Another startling stat – at the current rate of progress, it will take until 2097 for Latinx families to reach wealth parity with white families.

Wealth is savings in the bank – money owned – home equity, a retirement account, a small business minus money owed – debts like student loans or a mortgage. But looking beyond the balance sheet, wealth represents stability and security. It allows families to weather an unexpected medical bill or lost job. For the majority of adults that can no longer depend on a pension, wealth makes it possible to retire comfortably.

Policies and practices have kept people of color from achieving economic well-being. Homeownership is the largest item in families' wealth portfolio, yet de jure (by law) and de facto (by practice) segregation made building home equity next to impossible for people of color. A college education can connect individuals to high-wage jobs with benefits like health care, pensions, and paid leave, but segregated K-12 schools serving students of color are less likely to offer AP and honors classes and more likely to suspend and expel students. And the tax code has contributed as well, conferring more tax benefits to higher earners (e.g. mortgage interest deduction, tax-deferred retirement accounts) and allowing them to pass that wealth on to their children.

A conversation about the racial wealth gap will be a centerpiece of the 2017 Midwest Asset Building Conference. We are aware of the problems; it is time to work toward solutions. Housing, education, credit access, employment, and tax policies all require our attention. With a unified voice, we can advocate for changes that will address racial injustice and move toward shared prosperity.

Not Your Average Shark

This week, the Discovery Channel hosts “shark week.” As the channel educates viewers on the feeding habits of Great Whites and Hammerheads, anti-payday lending advocates will be using this opportunity to highlight the concept of loan sharking. You can follow or join the conversation using the hashtag #sharkweek and #stopthedebttrap onTwitter.

Loan sharking is the practice of lending money at exorbitant rates of interest. “Exorbitant” is defined in the eye of the beholder, but commonly, policymakers have set interest rate caps at 36 percent. However, small loans statutes like the one in Indiana, or other loopholes, allow lenders to charge much higher interest rates — typically well over 300 percent — on short-term or “payday” loans. While industry professionals argue that these interest rates are justified by the short-term nature of the loan, we now know that the average payday borrower is in debt for five months, spending an average of $520 in fees to repeatedly borrow only $375.      

Federal policy offers some protections. Through the Military Lending Act, active duty military personnel cannot receive loans above 36 percent. The Consumer Financial Protection Bureau is also working to ensure that some guardrails are put up around payday lending. While they cannot regulate the interest rates, they can – and hopefully will  –  ensure that lenders assess a borrower’s ability to repay the loan before making one and set limits on a borrower’s number of back-to-back loans. However, the CFPB’s proposed rule on payday and car title lending has yet to be formalized and Congress is actively working to prevent the agency from having any rulemaking or regulatory authority over payday and car title lenders.  

On the state level, policymakers and citizens are recognizing the harms of payday and car title lending and voting to rein it in. Most recently, South Dakota citizens voted by a 3-to-1 margin last November to cap all loans at 36 percent, effectively ending payday lending in the state. Before that, Colorado enacted a series of reforms bringing rates down to 129 percent and extending repayment periods. And data from other states that had payday lending and moved to a 36 percent cap show that borrowers employ healthier strategies to address budget shortfalls and many feel that they are better off financially without payday storefronts.  

Whether or not you feel that payday lenders are more dangerous than actual sharks , we encourage you to take a few moments this week to engage. Tweet at or write your lawmaker to #stopthedebttrap with sensible payday reforms, or share your story about your experience or your clients’ experiences with payday loans. Ready to dive deeper? Join our coalition of state-level advocates or consider offering a payday loan alternative product.

The Great American Health Care Debate Moves to the Senate

After a number of closed-door meetings, Senate Majority Leader Mitch McConnell just released a discussion draft of the American Health Care Bill.

There are a number of reasons to be concerned. The bill:

  • Ends Medicaid expansion – albeit a bit more slowly than the House bill – by phasing it out over three years beginning in 2021. When this happens, it is likely that states will not be able to absorb the costs and will cut Medicaid coverage. And in several states including Indiana, “trigger laws” will mean that the state will cut Medicaid expansion as soon as there is a drop in federal funding – so expansion in these states will end in 2021.
  • Caps Medicaid reimbursement with a growth rate to adjust it for inflation. This means that overages occurring because of a health crisis or natural disaster would rest entirely on the state’s shoulders. It also effectively cuts reimbursement by reducing the growth rate cap in 2025.
  • Maintains ACA exchange subsidies, but increases deductibles and eliminates assistance to some middle-income families.
  • Allows states to waive essential health benefit requirements and removes restrictions requiring states applying for waivers to demonstrate that the waived rule will not: result in a drop in individuals covered, reduce the comprehensive nature of the coverage, or impact affordability.
  • Provides nearly identical tax cuts to the House version, largely benefitting wealthy households, insurers, and drug companies.

Why does this debate matter to asset development? There is strong evidence to suggest that health and wealth are inextricably linked in complex and bi-directional ways. In other words, wealth improves health and health impacts wealth. Asset and income poverty makes adults less likely to be able to weather a major health event, especially if they lack insurance coverage. At the same time, untreated chronic conditions can make employment and, subsequently, wealth accumulation more challenging; and this is more likely to happen when individuals are uninsured or underinsured.

Advocates should call their Senators and, at a minimum, ask them to take the time to carefully consider this newly-released discussion draft and any subsequent proposals or amendments. A quick, clear message: “If this is a bill you are proud of, bring it home and discuss it with your constituents over the July recess.” Rushing a vote before the recess does a disservice to the millions of Americans whose health and wealth will be affected by the outcome.  

Financial CHOICE Act: Lawmakers Quick to Forget the Lessons of the Great Recession

Earlier this month, Prosperity Indiana and the Indiana Institute for Working Families staff met outside the American History Museum on the National Mall in Washington, D.C. to prepare for a whirlwind round of visits to our lawmakers on Capitol Hill. On our agenda: ensure that lawmakers considered the perspectives of working Hoosiers and the agencies that stand alongside them each day, helping to make financial well-being a reality. 

Our main policy target was the Financial CHOICE Act. This bill – which passed out of the House Financial Services Committee in early May – dismantles many of the financial reforms and consumer protections that were put in place following the Great Recession. This made our starting point at the American History Museum a bit ironic; how quickly many of our lawmakers seem to have forgotten the lessons of the past.

Use Evaluations to Preserve and Build on the Success of IDA Programs

A home. A degree or certification. The start-up costs for a small business. For families living paycheck to paycheck, these kinds of high-priced assets can feel completely unattainable, yet research suggests that these essential resources serve as buffers from economic volatility and pathways to the middle class. How do we help families secure them? For decades, matched savings accounts like Individual Development Accounts (IDAs) have been helping families make the acquisition of these assets a reality.

A number of organizations in Indiana administer Individual Development Accounts (the Indiana Housing and Community Development Authority maintains a list), which often include financial counseling and a 3-to-1 match on every dollar a low-income family saves. The Indiana General Assembly even voted unanimously in 2016 to expand the program’s eligibility and available uses. However, programs like these run the risk of disappearing unless program administrators can demonstrate their value. In fact, earlier this year the U.S. Senate Appropriations Committee voted to eliminate funding for the Assets for Independence (AFI) program, which supports Individual Development Accounts. Shortly thereafter, the House’s Appropriations Committee voted to fund AFI at the same level as last year. Congress will have to reconcile these differences before the end of the year.

National Payday Rule Could Save Hoosiers Millions, But Advocates Say Rule Still Needs Work, Strengthening

Today, the Consumer Financial Protection Bureau (CFPB) unveiled a proposal for a new national rule on payday lending that has the potential to save Indiana residents millions in fees if changes are made before the rule is finalized, said Kelsey Clayton, Manager of the Indiana Assets & Opportunity Network.

“The Consumer Financial Protection Bureau’s proposed rule on payday lending is a good beginning, but there is still much work to be done to ensure this rule truly protects consumers from an industry who preys on vulnerable Hoosiers,” Clayton said.  “Fortunately, this is just the opening offer. Our community will be working hard over the next few months to help the CFPB understand the importance of closing loopholes in what is otherwise a well-thought out proposal. In doing so, they can shut the debt trap once and for all.”

2016 Indiana General Assembly Session Review

The Indiana A&O Network policy team worked on three pieces of legislation this session. The first, a proposal to eliminate asset limits in the Supplemental Nutrition Assistance Program (SNAP) was introduced by Senator Vaneta Becker as Senate Bill 377. Several members of The Network and the broader human services community worked in support of this bill, including Indiana Association for Community Economic Development (IACED), Indiana Institute for Working Families (IIWF), representing Indiana Community Action Association (INCAA), Indiana Association of United Ways (IAUW), and Feeding Indiana's Hungry. The unanimous bill passed its first hurdle, the Senate Family and Children's Affairs Committee, but unfortunately moved no further. It was recommitted to the Senate Appropriations Committee where it was not given a hearing.

The second item the team worked on included reforms and an expansion of Indiana's Individual Development Account (IDA) ProgramSenate Bill 325, authored by Senator Mark Messmer, expands program eligibility to 200% of the Federal Poverty Guidelines and allows participants to use savings for owner occupied rehab, as well as vehicle purchase.  Again, several advocates worked on this issue, including IACED, IIWF, INCAA, IAUW, as well as a local community action agency Tri-Cap, which came to the hearing to testify and share client testimonials. SB 325 enjoyed unanimous support all the way through the legislative process and has been signed by the Governor.

Indiana's State Earned Income Tax Credit Continues to Build Appreciation

Last fall, the Indiana General Assembly’s Interim Study Committee on Fiscal Policy discussed the Legislative Services Agency’s most recent review (herein referred to as the Tax Review) of Indiana’s state tax incentives, including the state’s Earned Income Tax Credit.  On the whole, the findings of this review were very favorable to the state’s refundable Earned Income Tax Credit, declaring that it did in fact make an (albeit in some cases small) impact on both reducing poverty and incentivizing work. But there are two steps Indiana can take to simplify the state’s EITC and make it work better for more Hoosiers.

This comes as no surprise, as the Indiana Institute for Working Families has testified before the General Assembly and its study committees many times; the Federal Earned Income Tax Credit is our nation’s most successful anti-poverty program, and the State EITC, although much smaller, is part of the EITC’s success story.  

CSAs – A Fiscally and Socially Responsible Strategy That Works

Ask Alexis, a 7 year old first grader in Wabash County, what she wants to become when she grows up and she will tell you an “eye doctor.” Alexis is not the daughter of a doctor, but rather one of five kids in a low income, single-parent household. The tremendous pressures families face today make it difficult to prepare for their children’s futures. Fortunately, communities are harnessing the power of asset building and employing children’s savings accounts (CSAs) as a fiscally and socially responsible strategy. With community support, CSAs can help kids around our state and nation—kids like Alexis—pursue their dreams.

Credit Building and Policy Change Lifting Consumers from the Predatory Grip

While some may be beginning to celebrate in the continued rise of our economy, far too many Indiana residents still suffer from financial instability due in large part to subprime credit. A new report from the Corporation for Enterprise Development (CFED) reveals that 51 percent of Hoosiers have a EquiFax Risk score below 720. Our state ranks 46th in the nation for rate of bankrupt consumers.

Many of these families are not poor in the traditional sense. With the average annual pay for an Indiana worker hanging around $45,730, households that may have a decent income still fall further behind because of battered credit or lack of credit. These situations result in consumers having to engage with predatory lending practitioners. Pay day loans with an APR cap of 391% wreak havoc on Hoosier families. 

A Commonsense Plan to Rein in Payday Lenders

Payday lending gets a bad rap, with just cause. The payday lending industry’s shady business practices are well known, ranging from usuriously high interest rates to a repayment structure that traps many borrowers in a cycle of unaffordable debt. With lax or no underwriting standards, payday lenders can make loans with minimal consideration of the borrower’s ability to repay the loan due to lenders’ preferred repayment position, often resulting in overdraft fees. Because Hoosier payday borrowers are still vulnerable to these practices despite some consumer protections, the state could better prevent debt traps with more robust truth-in-lending disclosures and capped no-fee installment plans.

The need to protect consumers from predatory loans is so strong that the Corporation for Enterprise Development (CFED) has made it a priority during its Week of Action. 

House Bill 1340 - Another Risky Payday Loan

Payday loans are marketed as a quick financial fix but in reality create an inescapable debt trap.  Payday lenders charge  excessive rates, take access to a borrower’s bank account for repayment, and make loans with no regard for a borrower’s ability to repay without refinancing or defaulting on other expense.   As a result, they lead to harms such as overdraft fees, bank account closures, and bankruptcy.

Indiana Assets & Opportunity Network 2016 Policy Priorities

The Network has identified our top three policy priorities:

Eliminate Asset Limits

The Supplemental Nutrition Assistance Program (SNAP) is the new name for The Food Stamp Program. To be eligible for SNAP, a household's monthly income must not exceed 130 percent of the poverty line or $2,177 for a three-person family in fiscal year 2015, and; a household may not exceed $2,250 in countable resources such as a bank account, or $3,250 in countable resources if at least one person is age 60 or older, or is disabled. Asset limits send a message that saving is a behavior that warrants punishment by forcing families to spend down longer-term savings in order tocontinue to receive SNAP benefits, which creates a cycle of reliance on those benefits. By eliminating the asset limit, we are better able to help families develop good savings behaviors. And it is not as if eliminating SNAP asset limits will swell the rolls. According to Indiana's Legislative Service Agency, only 0.23% of SNAP applications -897 out of 382,000 applications - were denied due to assets in excess of state limits between December 2013 and November 2014. Eliminating asset limits will reduce the administrative burden of verifying reported assets, allowing case workers to pay greater attention to other aspects of their job. States that have eliminated asset limit tests have seen improved administrative efficiency post elimination.