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.

Time to Act on Payday Lending … Happy Birthday Consumer Financial Protection Bureau

It has been five years since the enactment of The Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau (CFPB). Today, the Bureau is working on rules to curb the abuses of the payday lending industry. In Indiana, payday lenders drain $70.5 million from residents annually. This is a loss to local economies. Payday lenders charge, on an average 14 day loan, 356 percent.

As the CFPB takes up this work, the Indiana Association for Community Economic Development (IACED) and Congressman Andre Carson sent the Bureau a message of strong encouragement. Congressman Carson said, “I was proud to vote for creation CFPB five years ago this month. After the financial crisis, it was absolutely critical to have a dedicated advocate for consumers and make sure they’re treated fairly. The CFPB has demonstrated its ability to fulfill its mission.

Payday Lending…No Good For Consumers

Just yesterday I mentioned abusive payday lending practices to a friend of mine. He stated he used the loans a few times in his early 20s because he was irritated with his bank at the time. He had accrued multiple overdraft fees through his bank account, and never received adequate notice of the fees and quickly was in over his head with debt. He closed his account and vowed never to use the institution again. I began asking all the questions concerning the foundation issues of the payday loan business model. “How much interest did you pay per loan, did you ever get stuck in the cycle of churning your loans, what made you stop using them?”

He had paid about $53.00 per loan, did not get stuck in the cycle of refinancing his loans, but only stopped using them when he earned more income. So this got me thinking, how do most payday loan customers get out of it if they aren’t able to earn more income? Are there other options out there?

Indiana Desperately Needs to Focus on Job Growth, Ranked 40th in the Nation

Although reports indicate the U.S. economy is growing steadily, Hoosiers continue to suffer from a lack of economic security and job growth. A comprehensive report recently released by the Corporation for Enterprise Development (CFED), based in Washington, D.C., shows that only 1.3% of Indiana residents own their own small business, receiving on average $1,492 for a small business start-up.[i] Many families struggle to meet their basic needs of food, child care, housing, health care, and transportation. Head of households are working multiple part-time jobs in an effort to make ends meet. It is time to focus not only on building assets to get by but to support families in building wealth for their long-term stability. The 2015 CFED scorecard provides rankings for all 50 states and District of Columbia on both the ability of residents to achieve financial security and policies designed to help them get there. Indiana has only adopted 1 of 10 policies that would help Hoosiers move up the economic ladder in the category of businesses and jobs.