Many Hoosiers are familiar with the payday loan store front. “Payroll Advances,” “Fast & Easy,” “CA$H” reads the store front’s marquee. The promise of fast and easy cash is coupled with predatory lending practices that often ensnare borrowers in years-long debt traps.

One Indiana borrower described taking a loan from an Internet payday lender when he was $400 behind on bills. When the 14-day loan came due and he couldn’t pay, he renewed the loan several times. “Within a few months is when the nightmare spun out of control,” he said. “I ended up taking out multiple loans from multiple sites, trying to keep from getting bank overdraft fees and pay my bills. Within a few months, payday lenders, who had direct access to my checking account as part of the loan terms, took every cent of my paycheck. My checking account was closed due to excessive overdrafts and my car was repossessed. I had borrowed nearly $2,000 and owed over $12,000.”

The Consumer Financial Protection Bureau (CFPB), a consumer watchdog group, plans to release a proposal that would regulate two categories of loans — short term loans, defined as having a repayment plan of less than 45 days and long term loans, defined as having a repayment plan of more than 45 days. However, long term loans would only be regulated if they have an annual percentage rate (APR) greater than 36 percent or are repaid directly from a borrower’s checking account, wages, or secured by the borrower’s vehicle. The proposal was published as a draft last year with organizations like the Center for Responsible Lending supporting some of its measures and criticizing others. The final proposal may be released as early as mid-September.

The CFPB has proposed a payment-to-income, or PTI, of 5 percent. This means that a lender cannot charge a loan repayment that exceeds 5 percent of a borrower’s income. Recognizing that income alone does not accurately depict a borrower’s ability to pay, the CFPB has proposed an ability to repay requirement that considers both income and major financial obligations, such as housing expenses, minimum payments on outstanding debt obligations, court- or government-ordered child support obligations, as well as basic living expenses. CFPB data shows that 40 percent of borrowers considered able to repay based on the 5 percent PTI still default on their loan.

The draft proposal contains loopholes, however, which exempt payday lenders from following the 5 percent PTI. For example, lenders can turnover the loan six times before they are required to offer a repayment plan on the seventh loan. Another loophole is that lenders are not required to verify income nor verify additional expenses.

A 5 percent PTI that does not consider other financial obligations further depletes low-income peoples’ already meager incomes and does little to stop the debt trap that ensnares the majority of borrowers.

Further, the 5 percent PTI threatens the strong protections in the states for which the 5 percent PTI, or even a 36 percent APR cap — a distant dream for some states — is regressive. Fifteen states and the District of Columbia have effectively banned payday lenders from operating within their borders by passing rate cap bills at 36 percent APR or lower.

The proposal may also affect mainstream financial institutions. The 5 percent PTI subverts guidelines issued by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), who in 2013, mandated banks evaluate income and expenses when disbursing loans repaid via the borrower’s checking account.

The CFPB’s proposal should introduce measures that stop the debt trap. The Bureau is barred from issuing caps on APR so structuring a PTI thoughtfully to anticipate loopholes is critical.  Payday loans are designed to shepherd borrowers into immediately taking out — “flipping to” — another loan. In Indiana, 60 percent of borrowers take out a new loan the same day they pay off their old loan. Within 14 days, 77 percent have re-borrowed. According to CFPB data, over 75 percent of payday loan fees — revenue for lenders — come from borrowers who take out 10 loans or more per year. The debt trap is integral to the payday loan business model, sustaining its profit-making arm.

While mainstream financial institutions are known to misbehave, it behooves them to underwrite loans only disbursed to responsible borrowers. Payday lenders who have access to borrowers’ checking accounts and car titles lack this incentive. In a 2016 report, the CRL writes that “the market incentive to underwrite [the loan] is flipped on its head . . . The lender is counting not on the borrower’s ability to repay the loan, but rather on the lender’s ability to collect on the loan, whether or not the borrower can afford to repay it.” Research shows that payday loans increase the likelihood of overdraft fees, involuntary bank account closures, and bankruptcy. This predatory practice enables the industry to extract an estimated $70 million in finance charges each year in Indiana alone. Stronger consumer protections against payday lending would put $70 million more in the pockets of low-income Hoosiers.

The cycle of debt persists in Indiana despite provisions in our state law such as rollover bans and cooling off periods. The harms caused by these unaffordable payday loans are particularly detrimental to Veterans and communities of color, populations which payday lenders target and exploit. The CFPB is critical in creating stronger protections to defend at-risk consumers from payday loan sharks.

There is no evidence to support that competition among payday lenders drives interest rates down. Instead, research consistently shows that payday lenders charge the maximum APR permitted by state law. For example, Indiana caps APR at 391 percent and the average lender charges 382 percent. Advocates of the free market would argue that competition drives prices down. While that holds true in some markets, it fails to describe the reality of the payday lending market.

While the CFPB can enact certain consumer protections, it does not have the mandate to issue a 36 percent APR cap. Senators Joe Donnelly and Todd Young, along with other politicians, do. Write, call, or tweet your Senators to urge them to support stronger protections for Hoosiers — especially for more vulnerable consumers earning 80 percent or less of the area median income (AMI) who are more likely to use payday lending services. Indiana would join several states that had triple-digit interest rates, but have since capped APR at 36 percent, including South Dakota, Arizona, and Montana.

Contact Senator Young here, call 202-224-5623, or tweet @SenToddYoung.

Contact Senator Donnelly here, call 202-224-4814, or tweet @SenDonnelly.

THE STATUS OF WORKING FAMILIES is a biennial report that analyzes the general state of Indiana’s economy as it relates to working families by examining data on poverty, labor force and wages, followed by working-family friendly policy options. -The Indiana Institute for Working Families.

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The Consumer Financial Protection Bureau released a homeownership toolkit called "Owning A Home," to help buyers learn about loan options, compare interest rates, understand closing forms, and prepare for closing. It is an easy-to-use, interactive tool to assist in the strenuous process. 

Read more.

National Public Radio (NPR) recently published a segment titled “Your ZIP Code Might Be As Important To Your Health As Your Genetic Code.” The segment details Kaiser Permanente, a nationwide care consortium’s, Portland, Oregon hospital. When a patient approaches the receptionist’s desk, she is asked to fill out a “life situation form,” which inventories the patient’s non-medical stressors. The questions, which gather information about housing, finances, transportation, and food access, provide Kaiser Permanente a richer picture of the factors that influence their patients’ health so that they can more effectively treat them.

The life situation form is a mechanism for determining the social factors that influence a person’s health and, for years, public health professionals have championed studying and addressing these factors, designated the Social Determinants of Health.

“My personal belief is that putting more money into health care is a moral sin,” said Nicole Friedman, a regional manager at Kaiser Permanente Northwest. “We need to take money out of health care and put it into other social inputs like housing and food and transportation.”

Friedman’s statement reveals a conviction among proponents of the Social Determinants of Health: health inequalities will persist among the rich and the poor, regardless of equal access to health care services, if the underlying causes of health issues remain untreated. A study conducted by Dr. Leonard Syme, Professor Emeritus of Epidemiology and Community Health at Berkeley’s School of Public Health, offers an example. Dr. Syme and researchers studied health problems among San Francisco, CA bus drivers over the age of 60. The researchers noted high rates of hypertension, back pain, alcoholism, and gastrointestinal and respiratory problems in the study population, problems that were eventually identified as a consequence of the job. 

“Computers devised a rigid bus schedule that allocated time depending on the number of buses available, but the computers were allocating time in a city with a bus shortage. Drivers had to get from Mission and Army Street to Mission and Geneva Street, for example, in 2 minutes. A fast ride in your Ferrari on Sunday morning would take longer. In addition, because drivers were penalized when they arrived late, they gave up rest stops and dashed into fast-food restaurants instead. And since the drivers were almost always late, the passengers were almost always angry. Drivers lacked control over a host of variables such as traffic and terrible shift arrangements, and drove during both morning and evening rush hours without enough time to go home in between shifts. At the end of a long day, many visited the local tavern. When they got home, they did not often socialize, but went to bed, only to get up at 4:00 a.m. to begin another grueling day.”

This study reveals that social class, as determined by a person’s profession, underprivileges those, who without an advanced degree, hold certain jobs. The intersecting and mutually reinforcing factors that comprise the Social Determinants of Health must, therefore, be met with complex and innovative solutions.

Each year, the American Hospital Association (AHA) recognizes the engineers of these innovative “collective impact” strategies. The AHA Nova Awards are bestowed upon AHA member hospitals that engage local stakeholders to improve community health by addressing the economic and social barriers to care. 2017’s AHA Nova Award recipients have worked to tackle the opioid epidemic, fight childhood asthma, transition youth out of the foster care system, deploy mobile pediatric healthcare vans to public schools, and provide free dental care to the uninsured. They do so by identifying the root causes of health inequality in their communities and applying preventive care to mitigate further inequality down the road.

Prosperity Indiana and the Indiana Assets & Opportunity Network enthusiastically agree that a community’s social determinants ― a zip code that has quality public schools, clean air, parks and playgrounds, grocery stores and farmers markets, strong social connections, and affordable, safe, and secure housing ― enables or constrains its ability to prosper. Each determinant is a crucial ingredient to a healthy person and a healthy community. That’s why Prosperity Indiana has chosen to highlight the Social Determinants of Health at its Summit on January 24, 2018.

"A comprehensive approach to community development studies the impact that the health of communities has on economic opportunity," said Andy Fraizer, Executive Director of Prosperity Indiana. "Community health and community development are interrelated fields well-suited to collaborative work."

 

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 oflending money at exorbitant rates of interest. “Exorbitant” is defined in the eye of the beholder, but commonly, policymakers have setinterest rate caps at 36 percent. However, small loans statutes likethe one in Indiana,or other loopholes, allow lenders to chargemuch 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’sproposed rule on payday and car title lending has yet to be formalized and Congress is actively workingto 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. Anddata 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 apayday loan alternative product.

Tuesday, July 25 marked the release of the 2017 Prosperity Now Scorecard. The Scorecard, which ranks all 50 states and the District of Columbia along five indicators of financial security, also reports on the policies that enable or constrain states' capacity to perform well along the measures. A state’s outcome rank is determined by averaging its performance of each indicator — Financial Assets & Income, Businesses & Jobs, Homeownership & Housing, Healthcare, and Education. In 2017, Indiana averaged an outcome rank of 32, down from 30 in the 2016 Scorecard. As in 2016, Vermont ranked first while Mississippi ranked last.

Data from the Scorecard reveals that economic gains accrued since the recession disproportionately benefit wealthy families and that income and wealth inequality is especially pronounced between white households and households of color.

The Financial Assets & Income indicator reveals that, in Indiana, incomes of the top 20 percent of earners are 4.3 times higher than the incomes of the bottom 80 percent of earners. Additionally, the Scorecard reports that while 13.4 percent of households are considered income poor, households of color are 2.2 times more likely to be income poor than white households. 21.9 percent of households experience income volatility, 20 percent of households have zero net worth, and 23 percent of households are un- or under-banked. Despite the pressing need to mitigate the effects of financial insecurity, the Indiana legislature adopted only 5 out of 20 recommended policies in 2016 pertaining to the issue of Financial Assets & Income.

"There is a misconception that communities are thriving across the state, but as you can see in the 2017 Scorecard, many Hoosiers are still struggling to meet basic needs and build assets," said Kelsey Clayton, Indiana Assets & Opportunity Network Manager. In fact, more households are liquid asset poor (34.5 percent), meaning not able to subsist at the poverty threshold for 3 months utilizing existing assets, than income poor (13.4 percent).

In all five outcome categories, Indiana received a “C” for its relative performance against other states. The grade is consistent with the previous year. The lack of measurable progress in Indiana — though not unique to the state — should serve as a call to action for advocates, policymakers, and practitioners.

Prosperity Now uses national, state, county and city census data to create the Scorecard. The Scorecard interprets the data through the lens of financial security to facilitate conversations about the policies that put households on stronger financial footing. The Scorecard can orient stakeholders’ problem-solving toward achieving financial security in their communities — particularly among target populations, such as households of color, the un-banked, small business owners, single parent households, and more.

To access the Prosperity Now Scorecard and its interactive tools, visit their website.

Today marks the sixth birthday of the Consumer Financial Protection Bureau (CFPB), a consumer watchdog group formed in response to the 2008 financial crisis. The brainchild of Senator Elizabeth Warren (D-Mass.), the CFPB advocates for consumer protections against usury financial products, as well as enabling consumers’ capacity to advocate for retribution against these practices.

The CFPB has achieved success in its mission. According to Consumer Reports, since its inception in 2011 the CFPB has won $12 billion in refunds for 29 million Americans who have been mistreated by financial companies. The CFPB’s efforts target mortgage abuses, predatory student loan servicers, abusive banking practices, resolving consumer complaints, and distributing information. On one hand, those informed about the CFPB’s actions regard the agency favorably. In a survey published by Creditcards.com, a credit card shopping website, 3 out of 4 respondents who knew of the CFPB had a favorable opinion toward it. On the other hand, 81 percent of respondents did not know enough about the agency to regard it either favorably or unfavorably. 

It is the CFPB’s relative obscurity from public opinion which, in part, facilitates the current Congressional legislation to limit the CFPB’s scope of activities — and even dismiss the Bureau altogether, a bill (Repeal CFPB Act) put forth by Sen. Ted Cruz. Opponents’ critiques of the agency are diverse. Rep. Jeb Hensarling (R-Texas) maintains that the CFPB limits consumer choice. Some opponents are critical that the CFPB is led by a single individual, Richard Cordray, instead of a multi-member commission. Currently, Cordray, who was appointed by President Obama, can only be dismissed by the President with due cause. Legislation proposes that the President should be capable of firing a CFPB director like Cordray at will. Others still, such as Alan Kaplinsky, a Philadelphia-based attorney at Ballard Spahr, a law firm that represents banks and consumer finance companies, emphasize that the agency succumbs to the trappings of bureaucracy — creating paperwork problems that add unnecessary costs to a budget-strapped government.  

A particularly troublesome piece of the legislation, named the Financial Choice Act, contains an anti-arbitration clause, which is set to take effect in September that forbids consumers to file a class action lawsuit. This proposal would make it more difficult for consumers who were exploited by widespread malpractice, such as the fraudulent accounts set up by Wells Fargo Bank, to mobilize a lawsuit against a financial product provider. 

Pam Banks, senior staff attorney with Consumers Union, the policy and mobilization arm of Consumer Reports, believes that weakening the CFPB would have devastating effects for consumers. “Without the CFPB, consumers would be left defenseless against those who would treat them unfairly, cheat and abuse them for profit,” she said. 

Research demonstrates that there is strong bipartisan support among consumers for the CFPB and the vital role the agency plays in ensuring consumers are protected from financial product providers who would otherwise exploit them for personal gain. A 2015 survey of banker ethics conducted by The University of Notre Dame and Labaton Sucharow LLP found that one-third of bankers who earned annual salaries of $500,000 or more said they had witnessed or have first-hand knowledge of malpractice in the workplace. One-fourth said they would break the law themselves if doing so could make them $10 million. The deep-seated culture of financial malpractice precludes the possibility of a market free from government oversight.

If you are experiencing financial hardship or believe you may be a victim of financial malpractice, visit the CFPB’s website.

In an effort to celebrate and preserve the CFPB on its sixth birthday, please sign Consumer Union’s petition.

THE ALICE REPORT

ALICE was coined by United Way in 2009 after a pilot research project looked at the low-income population in affluent Morris County, one of the five founding communities which merged in 2011 to become United Way of Northern New Jersey. The original study focused primarily on data from 2007, largely before the effects of the economic downturn, known as the Great Recession, were widespread. - Association of United Ways

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Greetings,

My name is Allegra Maldonado and I am joining Prosperity Indiana as the Indiana Assets and Opportunity Network (Indiana A&O Network) AmeriCorps VISTA. During my year of service I’ll work with Kelsey, the Indiana A&O Network’s manager, to further our goal to increase asset acquisition for low-wealth Hoosiers and strengthen Indiana’s local economies. I am originally from Long Island, NY but have become familiar with the social and economic landscape of Indiana through internships in the state. Previously, I interned with the City of Indianapolis and The International Center of Indianapolis. In these roles, I convened Indianapolis’ Sister City committees to digitize their rich histories in partnership with the Indianapolis Public Library and assisted in planning itineraries for participants of the International Visitors Leadership Program, among other responsibilities.

I attended Kenyon College, a small liberal arts college in Ohio, where I majored in International Studies and minored in Italian. While pursuing my undergraduate studies I had the opportunity to study abroad in Siena, Italy. In addition to taking classes, I worked as a research assistant in the University of Siena’s Centre for Political Progress. The intersection between poverty and political representation is a particular interest of mine that I hope to explore during my time with the Indiana A&O Network.

Though I have just begun my year of service, I have already learned a lot about asset-building and am eager to learn more. Soon, I will be reaching out to partners to discuss both how the Indiana A&O Network could support you in your activities and which of your own skills the Indiana A&O Network can leverage to further its goals. 

Please contact me at amaldonado@prosperityindiana.org with any personal or professional questions. I look forward to working with you all this upcoming year.

Allegra

In 2015, the Federal Reserve Bank and Prosperity Now collaborated to publish a book called What It’s Worth, to share ways to “strengthen the financial future of families, communities and the nation.” The Indiana Assets & Opportunity Network (Indiana A&O Network), a statewide asset-building coalition, is planning four lunch-n-learns across the state to discuss concepts from the book.

The Indiana A&O Network has commissioned a videographer and animator to produce a 20 minute video to show at the beginning of the events to encourage open and honest discussions about financial instability and local solutions to economic mobility barriers for families in Indiana. As it relates to the book, the events will include information and discussions on wealth disparity, strong cognitive functioning for youth, and financial decision making for the aging through the lens of health and wealth.

Discussions will take place between August and October 2017 and are planned in the following four locations: Tippecanoe, Porter, Shelby, and Vanderburgh Counties. The Indiana A&O Network is partnering with the Indiana Library Federation to help coordinate and host each event at a local library in the area. Libraries bring connectedness, provide access to expanded creativity, and establish an unfettered environment for learning for the community. The Indiana A&O Network believes this is the perfect setting to dialogue about issues that affect community members. Each event will be 1.5 hours with a graphic facilitator with Stone Soup Creative documenting the conversation on a large-scale image at the front of the room in real-time.

The events will bring together practitioners across sectors – community organizations, anchor institutions, financial institutions, funders, and library staff – to have a meaningful discussion about strengthening financial futures for individuals, families, and communities. Each audience member will receive a free copy of What It’s Worth to take home. We expect audience members to use the book and video to host their own events to facilitate a deeper, local discussion about financial instability and potential solutions to these issues in their communities.

An advisory committee has been collaborating to ensure this project is a success. Committee members include Naomi Bechtold with Purdue Extension-Marion County, Kelsey Clayton with the Indiana A&O Network manager and Allegra Maldonado serving as an AmeriCorps VISTA. Additional funding support provided by Prosperity Now and Regions Bank.

To register for this free event please visit: http://www.indianaopportunity.net/upcoming-events/ and scroll down to find a county closest to you.