"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.