The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-07-13

rected against a section of societ
Thus when Indiana, via the De-
partment of Fiancial Institutions,
attempts to regulate the whole
sphere of consumer credit, both
good and bad, it is tackling some
thing that no other state has en-
deavOred to do. That the road to
regulation in this particular case Is
a bumpy one will be conceded by
every one.
Consumer credit agency" Is a
hybrid word. taken alone. Under the
act which went into effect July l,
however, it means an agency which
enables individuals to purchase
goods for consumption. Such agen-
cies fall into two clasSiications-
those making direct loans to con-
sumers and those financing install
ment sales.
$50 Consumer Agencies
In the first division are CONNER
cial banks, credit unions, small loan
companies, loan and investment
companies industrial banks, pawn
brokers, finance companies and mis-
.cellaneous unlicensed lenders. In
the second group are finance COM
panies, inStallment sellers, CONNER
cial banks, loan and investment
companies and miscellaneous in
veStOrS.
Without consideration to CONNER
cial banks, there are approximately
500 consumer credit agencies doing
business in the state today. Many
of them up to this time have not
been subject to any regulation; not
even their conSciences.
After a comprehensive survey of
the division of research and Statis-
tics of the Department of Financial
Institutions disclosed that fragrant
abuses were prevalent in the con-
sumner credit field. The findings
we're presented to Governor Paul V.
McNutt, who later asked the de-
partment to draft bills to correct the
evils uncovered
Commercial banks for years have
viduals at rates of from to 8 per
cent, generally the latter. Actually,
however, the real cost of these loans
was 13 to 18 per cent, because the
lenders, discounting the loan on an
annual basis, were receiving inter-
est on funds which had been re-
paid.
The contemplated law provided
for a maximum rate OF Ia per cent
monthly, based on the unpaid bal
ance. The legislature toned down
this demand and merely placed the
power to regulate the banks with
out specifying a particular rate.
Sc Months Maximum
Small loan companies are in a
particularly risky credit field. Bor-
roWerS from these concerns 5rdi-
narily can give no security other
than a chattel mortgage and must,
of necessity, pay high rate of in
tereSt. The longer the loan runs
the greater will be the interest which
the borrower pays. as was the case
in one instance where more than
$1,000 in interest had been paid on
loan of $500. To prevent the repe-
tition of such abuses, the depart
ment has set So months as the
maximum period in which prescribed
rates can be charged.
At the end of the 36-month pc
riod the lender can make no charge
for interest whatsoever. Any pay
ments made by the borrower shall
be applied toward the principal of
the debt.
Loan and investment companies,
or industrial banks, into which
category fall Morris Plan Banks,
had not been subject to any super
vision prior to July l. Loans fur
nished by these institutions for the
most part are secured by co-makers
signatures. Here again, the dis
count method lifts an apparent in
! terest rate of s per cent to an actual
basis of from II to % per cent, de-
pending on the term of the loan,
These companies also sell invest
ment certificates, which yield an in
! terest return of 3 to per cent
New regulations provide that the
maximum interest rate allowed on
loans procured from these industrial
banks should be left up to the de-
partment 1t is also provided that
payments should be credited to the
amount of the loan and not to in
veStment certificates. The word
bank" in the title of these institu-
lions has been miSinterpreted by
some and consequently, the depart
ment is to have supervision over
their investments and to make as
many examinations as desired.
The departments regulations
even extend into the oyer-Stuffed
domain of the pawnbroker. Miscel-
laneouS ''uncles" are allowed a mill
imum interest charge of IS cents
and the same maximum as provided
/ for small loan companies. In the
case of sale of pledged articles the
/ pawnbroker can sell them at public
| auction no less than three months
after maturity. The pledged must
receive 20 days notice of the pro-
posed sale. Proceeds of such auction
shall be applied first to the auction
GERS charges. principal and interest
on the loan and any surplus goes to
the pledger.
InStalment selling in this country
is more than 125 years old, but its
most phenomenal growth has oc-
CURED in the last 20 years. The
extent of this business in Indiana
is indicated by the fact that 80 of
these companies in 1888 advanced
more than $16.00o.000 in funds. The
actual rate of interest charged on
inStalment sales contracts ranges
from IL to 40 per cent and may
exceed 100 per cent.
Finance Company Rules
The finance company, unlike
0fhar rOpStfr,or rroIif oraroiae loo-