Many states have regulations regarding the issuance of payday loans. These regulations came about because of the predatory practices of some lending institutions. The states put laws in place that would protect vulnerable debtors from being caught in the trap of overwhelming debt. The following contains information about payday loan laws in Indiana.
Payday lenders can issue short-term cash advances to consumers in an amount that cannot be greater than 15 percent of that person’s gross monthly income. Therefore, someone who earns only $1,000 per month cannot receive a loan of more than $150 from an Indiana payday lender. Additionally, an Indiana payday lender may not lend more than $500 to any consumer of any kind.
Loan Life Regulations
A payday lender in Indiana must give its customers a minimum of 14 days to repay a loan. The lender can grant the consumer longer than 14 days, but it must allow that person at least two weeks for repayment.
Interest Rate Policies
Indiana has policies on payday loan interest rates. A payday lender cannot charge more than 15 percent interest on a loan of $1 to $250. A loan of $251 to $400 can only have a 13 percent interest rate attached to it.
Additionally, lenders can charge no more than 10 percent interest on loans between $400 and $500. These regulations keep the lending process fair for consumers, which is why they were put in place.
Borrowing Patterns and Cooling Off
An Indiana debtor cannot have more than two payday loans open at once. Furthermore, the two loans would have to be with separate lenders since the state only allows one per lender. Additionally, a consumer who takes out six consecutive payday loans must cease borrowing for seven days after the sixth loan. The seven-day period is called a cooling off period.
Former payday lenders used to make large profits by issuing consumers rollovers or extensions. They used to charge extremely high "refinance" charges to support the rollovers. Indiana prohibits:
consolidation of payday advances by the lenders
Additionally, lenders must offer consumers extended payment plans after they take out three consecutive loans.
The Indiana laws have been effective in preventing lenders from taking advantage of consumers. Those who still take out payday loans are more likely to repay their advances with these laws in place.