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, Prosperity Indiana 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. Now that the CFPB is up and running, we need stronger protections against lenders who prey on consumers in need of quick access to financial capital through payday lending. A medical emergency, accident, or unforeseen expense should not trap a family in a cycle of crippling and endless debt.”

Prosperity Indiana Executive Director, Andy Fraizer said “In Indiana, we are fortunate to have Congressman Carson standing with us as we urge the CFPB to adopt strong rules. Economic opportunity necessitates access to reasonably priced debt and credit options to stabilize families, secure dreams, and address financial needs. Prosperity Indiana and the Indiana Assets and Opportunity Network calls on the Consumer Financial Protection Bureau to adopt stronger payday lending regulations to address the financial agony created by abusive products.”

Congressman Carson is one of 101 congressional signers (68 House members and 33 Senators) of letters urging the CFPB to move forward with rules strong and broad enough to end the abusive practices of payday, car-title, and other high-cost consumer lenders. Strong rules will keep Americans from getting trapped in the cycle of debt that is too often the result of these triple-digit-interest loans.

The payday lending business model is to make loans they know cannot be paid back in full and on time – without requiring the borrower to take out another loan to cover basic necessities like food and rent. In fact, 75 percent of all fees paid to payday lenders come from borrowers who take out more than 10 loans in a year, and three-quarters of all payday loans are taken out within two weeks of a previous loan. One third of the time, when borrowers repay these loans, they overdraw their checking accounts, incurring yet more loan charges.

Under the terms of the Dodd-Frank financial reform law of 2010, the CFPB has the authority to regulate small-dollar consumer loans. The agency released a broad outline of its plans in March, and is expected to come out with a formal proposal later this year.

A new poll conducted in early July by Lake Research and commissioned by Americans for Financial Reform and the Center for Responsible Lending underlines public concern about payday abuses, and strong support for regulation. By more than a 3:1 margin, the survey shows, voters regard payday loans as predatory, rejecting a counterargument presenting them as an important resource. By a ten to one margin, voters across party lines favor a rule requiring small-dollar lenders to verify a customer’s ability to repay.

This blog post was prepared by Indiana Institute for Working Families (IIWF)

Included in a recent report from the Indiana Chamber of Commerce – ‘Indiana Vision 2025: A Plan for Hoosier Prosperity‘– was the Kaufman Index, a measure of entrepreneurship in the U.S. According to the Index, Indiana ranked 44th in 2015, up from 48th in 2014. Just 0.23% of the Hoosier adult population becomes an entrepreneur in a given month (that’s 230 out of every 100,000 Hoosier adults). The top state is Montana with a rate of 0.54%. Vermont, Alaska, New Mexico and California round out the top five, and nearly half of U.S. states have a rate of 0.30% or greater.

These measures are consistent with ‘Businesses and Jobs‘ indicators released by the Indiana Assets and Opportunity Network. Created by Washington D.C.-based Prosperity Now, the 15 measures are concerned, holistically, with both ownership and job quality. According to the Scorecard report, only 1.37% of Indiana residents own their own small business, a number that has continued to trend downward since 2008.

In its press release, the Chamber cites a “significant decline in venture capital invested” from 2012 to 2014. Indeed, “in terms of venture capital funding, [Indiana is] 36th with per capita spending levels far below the national average,” according to a recent op-edfrom Indiana University President Michael A. McRobbie, in which he cites the role that universities play in creating a stronger Indiana by attracting research dollars.

There are, however, additional ways that policymakers can create a business-friendly environment for all would-be entrepreneurs through programs such as individual development accounts (IDA) and self-employment assistance (SEA).

INDIVIDUAL DEVELOPMENT ACCOUNTS (IDA): IDAsare matched savings accounts that enable low- to moderate-income individuals to save money and build financial assets for the specified purposes of purchasing a home, paying for postsecondary education expenses, or starting a small business. Matched savings are exchanged for core financial literacy training and goal-specific training around growing assets for would-be entrepreneurs, homeowners, or students. Small business training helps recipients develop target markets; write a business plan; develop a marketing plan; and learn about small business loans and other resources for entrepreneurs. The program has a rich and successful history in Indiana. Aside from its high savings rate, 128 of the 5,657 (2.3%) accounts opened from 2009 – 2012 resulted in business start-ups, according to Indiana Housing and Community Development Authority.

SELF-EMPLOYMENT ASSISTANCE (SEA):  By removing regulatory barriers from Indiana’s unemployment insurance system, policymakers can help to unleash entrepreneurship for laid-off workers. Unlike traditional unemployment insurance in which benefits are exchanged for work-search activities, SEA participants are required to take part in entrepreneurial training (perhaps using IDA training as a vehicle?). Currently, only seven states in the U.S. have the program, but its success secured SEA a home in the bipartisan Middle Class Tax Relief and Job Creation Act. The Hamilton Project cites evidence from the “Massachusetts SEA program [that] strongly suggests that receipt of unemployment benefits combined with enterprise training can help the unemployed transition into productive employment, and can do so cost-effectively.”

Prosperity Indiana is pleased to announce an award of $50,000 from The Indianapolis Foundation, a Central Indiana Community Foundation (CICF) affiliate, to support the Indiana Assets & Opportunity Network (Indiana A&O Network). The Indiana A&O Network is a statewide coalition co-led by Prosperity Indiana, the Indiana Institute for Working Families (IIWF), and Local Initiatives Support Corporation (LISC). The Indiana A&O Network aims to increase asset acquisition for low-wealth Hoosiers and to strengthen local economies through policy advocacy and capacity building, in partnership with local organizations and coalitions.

This investment of resources from The Indianapolis Foundation will help the Indiana A&O Network maintain a full-time Manager who will continue to identify and implement program capacity building strategies that help coalitions and agencies increase asset-building efforts, facilitate advocacy outreach efforts on key policy priorities, and develop membership and steering committee engagement strategies.

“Acquiring assets – a family’s most important safety net – is crucial to the economic security of all Hoosiers. It is important that we support programs that help families reach economic self-sufficiency and understand the needs of our community members. There is a lot of great work happening throughout the state, and my hope is that this coalition can unite existing efforts to harness the collective impact of us all,” said Kelsey Clayton, Indiana A&O Network Manager.

This funding is being utilized in conjunction with $30,000 received from the Glick Fund, part of CICF, in October 2014. That funding was awarded to support research and policy analysis from IIWF and support LISC’s efforts to relaunch a local alliance, the Indianapolis Asset Building Coalition.

The Indiana A&O Network has a dedicated steering committee of thought leaders from across the state to direct the coalition toward opportunities and relationships that support positive collaboration and help move the needle on issues facing the working poor.

To join the Indiana A&O Network, sign-up for Earn, Save, Invest a monthly e-newsletter here; and for more information on initiatives, visit indianaopportunity.net.

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ABOUT THE INDIANA ASSETS & OPPORTUNITY NETWORK:

The Indiana Assets & Opportunity Network aims to increase asset acquisition for low-wealth Hoosiers and to strengthen local economies through policy advocacy and capacity building, in partnership with local organizations and coalitions. It is co-led by the Prosperity Indiana, which is a member organization skilled at coalition building and connected to local Indiana communities; Local Initiatives Support Corporation (LISC), a community development corporation with expertise in program design and support for frontline staff engaged in asset-building work; and the Indiana Institute for Working Families (IIWF), skilled in research, policy analysis, and advocacy. The Indiana A&O Network is the state lead for Washington D.C.-based Prosperity Now Assets and Opportunity Network.

ABOUT THE INDIANAPOLIS FOUNDATION:

Established in 1916, The Indianapolis Foundation was one of the first community trusts in America. The Foundation is a public charity and an affiliate of Central Indiana Community Foundation (CICF), a collaborative effort between the community foundations serving Marion and Hamilton Counties.

ABOUT CENTRAL INDIANA COMMUNITY FOUNDATION:

Central Indiana Community Foundation (CICF) is a $700+ million public foundation transforming the lives of central Indiana residents in three ways: consulting donors, family foundations and their professional advisors on charitable giving; awarding grants to effective not-for-profit organizations; and providing leadership to seize opportunities and address community needs. CICF was established in 1997 as a partnership between The Indianapolis Foundation, serving Marion County since 1916, and Legacy Fund, serving Hamilton County since 1991.

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?

Payday lenders are legal only because the state legislature granted an exemption from the state’s loansharking statute in the early 80s. Indiana has authorized payday loans for up to $550, but the amount to be paid back could not exceed 20% of the borrower’s monthly income. If a lender renews a loan more than three times they must then offer an extended payment plan at no cost. There is also a seven day “cooling off” period required after six consecutive loans. Also, borrowers can have two payday loans outstanding at a time, but only one from any individual lender. But, even these provisions have been ineffective at stopping the payday loan debt trap.

In our state, payday lenders drain $70.5 million from our residents annually. This is a major loss to our local economy. Payday lenders charge, on an average 14 day loan, 356% APR. Although payday loans are marketed as a quick financial fix, they typically result in a long-term debt trap. Often consumers are stuck with multiple loans per year, paying more fees than the total amount borrowed.

The Prosperity Now Assets & Opportunity Scorecard indicate Indiana is doing poorly in helping protect consumers from predatory lending practices. Indiana has adopted only one of the four policies that protect us. Learn more here.

What can be done?

The CFPB held a field hearing March 26, 2015 in Richmond, VA, see remarks. There was a large turnout from the payday industry employees and owners, but a lot of testimony from both sides. There will be a one month comment period for consumers to write into the CFPB about their experiences with payday loans. This is crucial. If you have a story, please comment today. The fact sheet on the CFPB rule is available here. It’s important to understand that the CFPB is not trying to eliminate the payday loan industry, but regulate the terms to protect consumers. Learn more about regulations.

The Network is currently working on understanding the regulatory environment in Indiana to see if there is capability to incorporate a Texas based employer based small dollar loan alternative to Hoosiers. Texas Community Capital is currently making efforts to expand the Community Loan Center product currently being used throughout cities in Texas. The program allows employers to participate at no cost and with direct deposit payroll. Employees of the companies can borrow up to $1,000 at 18% interest with a small fee of $20.00. The loan is paid back through monthly payroll deduction over the course of the year.

The Network believes there aren’t many options for individuals with sub-prime credit to safely and affordably borrow. We are working hard to create and expand borrowing opportunities as well as providing resources about payday lending. If you have any questions or insight, please contact the Network.

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 Prosperity Now, 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 Prosperity Now 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.

Micro and small businesses hold a significant place in the economic development of Indiana. These businesses typically have 5-10 employees and are often located on main streets in small towns and in bustling cultural districts in thriving metropolitan areas. Micro businesses form a dynamic, integral part of the market economy, providing goods and services and a gateway by which millions enter the economic and social mainstream of American society. [ii]

The Indiana Assets & Opportunity Network is an expanding coalition aimed toward supporting policies and innovative programs geared toward increasing job growth and small business development with the help of local partners. One program, for instance, is theSelf-Employment Assistance Program which provides individuals receiving unemployment benefits with the opportunity to enroll in self-employment training while continuing to receive their benefits. This would encourage an unemployed worker to pursue the dream of entrepreneurship. There are currently onlyseven states that offer this program.

On the policy front, a protection that the Network is supporting in Indiana for part-time workers is theemployee’s right to scheduled employment which would curb and potentially cease last minute scheduling for employees. By scheduling at the last minute, an unnecessary amount ofstress occurs for an employee, halting them into panic mode to juggle child care and transportation. A predictable work environment is vital to the mental stability of the individual.

The Prosperity Now Scorecard also indicated Indiana has not adopted policy to receive federal funding for the Workforce Investment Act (WIA) to support entrepreneurs and microbusiness development.  WIA often provides unemployed individuals with assistance through activities and programs that support employment, job retention, job skills advancement and increased earnings. If Indiana adopted this policy, a strengthened foundation would create stability for families and communities, grow productivity, and limit workplace turnover. Indiana needs to provide all its residents with the opportunity to take charge of their financial lives and plan for a more prosperous future.

It is essential for legislators to become aware that the path for financial security is three pronged, with a focus on maximizing income, managing and saving money, and investing in long-term assets such as education, a home and small business. Innovation is essential to Indiana’s progress in becoming a competitive state.

If policymakers choose not to act, thousands of Indiana residents will have little hope of moving up the economic ladder and contributing to the state’s long-term growth. That would be the wrong choice for our families and the wrong choice for our state.

To read an analysis of key findings click here,2015 Assets & Opportunity Scorecard. To access the complete Scorecard, visit http://assetsandopportunity.org/scorecard. Visit Prosperity Now’s media resources page for interactive data tools.

[i] Prosperity Now, “Prosperity Now 2015 Assets & Opportunity Scorecard”

[ii] “Small Businesses and the Community: Their Role and Importance Within a State’s Economy”, Journal of Extension

Mark the top three FINANCIAL STABILITY SERVICES that should be continued or expanded to help Hoosiers become financially stable. 

Financial education, counseling or coaching:  69.1% Education/training and employment programs: 62.2% Credit repair and debt management: 52.2% Matched savings (IDAs, EDAs): 24.5% Access to financial products: 23.2% Help applying for public benefits (SNAP, WIC, TANF Ect.): 19.4% Free tax preparation: 17.6% Homeownership resources: 13.8% Microenterprise resources: 8.1 % Other: 6.9%

 Mark the top three BUSINESS PRACTICES that should be changed or expanded to help Hoosiers become financially stable.

Employer-sponsored health insurance: 47.7 % On-site child care: 46.4% Work-based training: 40.7% Job or scheduling flexibility: 37.5% Sick/family/medical leave: 36.3% Tuition reimbursement: 22.9% Employer contribution to retirement plan: 22.9% Removal of the question about criminal offenses from job applications: 18.4% Honoring scheduled work hours (i.e. not scheduled and sent home when slow): 17.8% Other: 7%

Mark the top three GOVERNMENT POLICIES that should be changed or expanded to help Hoosiers become financially stable.

Limit maximum interest rates and fees on loans (predatory lending): 52.2% Raise the minimum wage: 49.6% Smooth out the benefit cliff as low-wage workers earn more: 47.7% Increase access to expungement for nonviolent offenders: 40.2 % Reduce abusive debt collection and loan repayment practices: 30.8% Preserve/expand tax benefits for low-wage worker (EITC, CTC, TCE): 29.5% Improve access to child support modifications: 13.2% Eliminate asset limits for eligibility programs: 12.5% Other: 5% Clarify/improve rules for bankruptcy: 3.7%

Prosperity Indiana is delighted to announce an award of $30,000 from the Glick Fund, a fund of Central Indiana Community Foundation (CICF) to support the Indiana Assets & Opportunity Network – a state lead for Washington D.C.-based Prosperity Now's Asset and Opportunity Network.

The Indiana Assets & Opportunity Network is a statewide coalition working to increase asset acquisition for low-wealth Hoosiers and to strengthen local economies through policy advocacy and capacity building, in partnership with local organizations and coalitions. The Network became a reality this past summer with committed partnership from the Local Initiatives Support Corporation (LISC), the Indiana Institute for Working Families (IIWF), and a full-time Network Manager from Prosperity Indiana, with the help and financial support of $50,000 from the Central Indiana Community Foundation.

One million of Indiana families are below poverty level. The Network will push to create a standard aimed at expanding and improving consumers’ financial literacy and help protect their assets.

This investment of resources from the Glick Fund will assist in the costs associated with organization and mobilization, including travel, marketing, expanding membership, outreach, and support the Indiana Institute for Working Families in research and analysis on income support and asset acquisition policies.

“The commitment of CICF will make a difference in the lives of Hoosiers experiencing financial hardship as we continue to reach out to communities throughout the state. It is essential to understand what our most vulnerable families are experiencing and help craft ways to better empower them,” said Kelsey Clayton, Indiana Assets & Opportunity Network Manager.

The Network expects its activities to result in short-term outcomes, such as: increased awareness, increased program participation and support for policy-change. Network partners are also exploring specific, aggressive but achievable long-term outcomes. The Steering Committee meets monthly to help craft focus and energy toward long-term goals for the Network.