$250 - $400 = 13%
$400 - $500 = 10%
In the state of Indiana, payday lending is considered legal.
Indiana limits the amount of a payday loan from $50 minimum to $550 maximum (and not in excess of 20% of the borrower’s monthly gross income). Borrowers are not allowed to get more than two loans at one time in Indiana and these loans should be from different lenders. The minimum loan term is 14 days. The amount of finance charges (10%, 13% or 15%) depends on the amount advanced. All criminal actions against borrowers are prohibited.
Indiana has a long history of payday loans that started in the 1990s and they are still legal and in demand nowadays. While payday loan regulations are somewhat restrictive in the state, average APR rates are still very high and can reach triple-digit numbers* (as of 2019). It mostly happens due to the fact that the cooling-off term between the loans is extremely short (7 days after the 6th consecutive loan) and the number of possible consecutive loans (6) is really large (compared to other states). Such terms (despite the 72% usury cap) make endless re-borrowing not only possible but legal and real, and high-interest rates are the result of it.
Indiana Payday Lending Statutes
Payday loans in Indiana are legal and regulated by Ind. Code Ann. § 24-4.5-7-101 et seq., the Uniform Consumer Credit Code — Small Loans.
Loan Amount in Indiana
- Sec. 104. (1) “Small loan” means a loan: (a) with a principal loan amount that is at least fifty dollars ($50) and not more than five hundred fifty dollars ($550);” . (IC 24-4.5-7-104 Small loan)
Rates, fees and other charges in Indiana
Finance fees collected from the borrowers are also regulated by the laws in Indiana.
- According to these laws, lenders are prohibited to charge more than 15% for a loan.
- Provided that a loan amounts to $401 to $500, the finance fee cannot exceed 10%; if it is $251 to $400 loan, finance fee should be not more than 13%, loans of $0 to $250 are generally charged the highest – 15%.
Real APR for payday loans in Indiana can reach 382% (*According to the Center for Responsible Lending 2019: “Typical APR based on average rate for a $300 loan advertised by largest payday chains or as determined by state regulator, where applicable.”).
Maximum term for a payday in Indiana
- There is no specified maximum loan term. However, according to the law, payday loans in Indiana should be repaid in the period of not shorter than two weeks (14 days).
- Basically, rollovers are not allowed but 3 extensions can be given to a borrower provided that the latter is unable to pay off in time. After these extensions’ period terminates a borrower should be offered an extended repayment plan without any fees that were not agreed on initially.
- A borrower is allowed to take another payday loan only after 7 days counting from the last 6 consecutive loans.
- Only 1 non-sufficient funds fee not more than $20 for a loan can be charged from a borrower.
- Any criminal actions against borrowers are prohibited in the state of Indiana.
Payday lending businesses are strictly monitored in the state of Indiana in order to prevent any violations from lenders and to protect the residents of the state. According to the law, a lender who commits a violation can be held liable and deprived of the possibility to collect any payments in the future, in some cases it is a fine of $1,000 to pay for a violation, or both.
The Indiana Department of Financial Institutions is the authority body where to send requests and complaints about payday loans in Indiana.
The History of Payday Loans in Indiana
- 1973 – The Indiana State Legislature got its version of the Consumer Credit Protection Act in the form of Ind. Code §35-45-7. It introduced the usury cap of 72% APR (two times the rate specified in IC 24-4.5-3-508(2)(a)(i)) and requested lenders to comply with it. Charging the rates in excess of this limit would be considered “loansharking, a Level 6 felony.”
- 1990s – First payday loans appeared in the state of Indiana.
- 1993 – The Indiana Department of Financial Institutions was created. It regulates traditional banks and small lenders, and also, the payday lending industry. However, payday lenders continued to grow in numbers, flourish, and charge 391%APR in Indiana regardless of the aforementioned usury cap.
- 2002 – All thanks to the new legislation introduced by the Indiana General Assembly that exempted payday lenders from the 36% APR cap. Such a move officially allowed payday lenders to charge at their discretion.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. This federal law has no exceptions, thus, no lender in Indiana is now allowed to offer loans to the military in excess of 36% APR.
- 2000 – Nowadays – Code Ann. § 24-4.5-7-101 et seq. (its key terms are mentioned earlier in the text) currently regulates the activity of payday lending companies in the state.
- 2013 – According to the Center for Responsible Lending report, 4,220 loans were taken in Indiana, with the average of $317.
- 2015 – There were 35 active licensed lenders in Indiana.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (the federal rule is expected in November 2020).
- However, it is more and more unlikely that the rule will ever come into effect and not without Indiana’s assistance: a specific bill in the U.S. Senate that would enact many previous regulations is actually being co-sponsored by an Indiana senator.
- 2018 – SB 245 was intended to raise the minimum amount of a loan, it failed to pass into the Senate.
- 2018 – SB 325 was intended to raise the loan limits to $605 and $1,500, respectively, increase the loan term from 90 days to 12 months and allow APR of up to 222%. The bill passed the Indiana House, however, it died in the Indiana Senate.
- 2019 – Another bill, SB 104, was intended to cap payday loan APRs at 36%, however, it was voted down.
- April 2019 – The most recent bill, SB 613, passed the Senate but died in the House. Should it have passed, it “would have allowed 2 new loan types, including loans of $605 to $1,500 for six to 12 months with annual percentage rates up to 192%”. (Southbendtribune.com)
- Thus, as of today, the situation stays the same. However, Indiana is one of the states where payday lenders do make a stir and are not ready to give up easily.
(As of April 2019)