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 /,
however, it means an agency which
enables individuals to purchase
goods for consumption. Such agen-
cies fall into two claSSificationS-
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
Eof 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 we're prevalent in the con-
sumner credit field. The findings
were 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
been making direct loans to indi-
viduals at rates of from to 8 per
cent, generally the latter. Actually,
| however the real cost of these loans
was Is 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 maximum rate of IL 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
QAOOO III IldO UCCll DdlO Oll
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
Rod 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 8 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 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-
tionS 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 over-Stuffed
domain of the pawnbroker. Miscel-
laneous "uncleS" are allowed min
imum interest charge of 25 cents
and the same maximum as provided
for small loan companies. In the