Lawmakers in Indiana have rejected an effort by high-interest payday loan companies to set up shop in the Hoosier state. Advocates for lower income people are celebrating the victory, saying that payday loans target the poor who are often short on cash, and thus willing to pay ruinous interest rates for quick turn-around loans.
Even so, a bill allowing payday loan providers to practice in Indiana came close to passing. In fact, the bill was approved by the Indiana House before being rejected by the full legislature.
Payday loans are legal in many U.S. states. Some of them charge in excess of 500% interest. The Indiana bill would have allowed payday lenders to charge interest rates multiple times higher that what Indiana law has defined as “criminal loan-sharking.”
But those who favor payday loans say many people have no other options for getting credit. Traditional banks are unwilling to work with low income people or those with spotty credit ratings. They also are frozen out of the credit card market. Poor and bad-credit loan seekers have nowhere to turn.
But payday loans are not the answer, say critics of the practice. They suggest poor people turn to other resources, such as the United Way, community action agencies or local township programs for help.
Payday loans push low-income workers into a downward spiral of repeated short-term lending that morphs into a vicious cycle of high-interest paybacks that leaves even less money in the pockets of those who need it the most.