Indiana Payday Loan Laws: The Ultimate Legislative Guide

Each state government has the authority to prohibit, restrict, or ignore the industry for themselves. As a result, you’ll find 50 completely different rulesets in each state. This guide explores the Indiana payday loan laws and the history of the industry.

Payday lending status in Indiana: Legal

Payday lending is currently legal in Indiana. While there are some restrictions in place, they don’t do much to control the industry. Their maximum annual percentage rate limit is well into the triple digits, and the traditional payday loan (small principal balances, short repayment term, high interest rate) is very much alive.

READ MORE: States where payday loans are illegal

Loan terms, debt limits, and collection limits in Indiana

• Minimum loan amount: $50
• Maximum loan amount: $550 (or 20% of monthly gross income)
• Minimum loan term: 14 days
• Number of rollovers allowed: None
• Number of outstanding loans allowed per lender: One (from up to two lenders at a time)
• Cooling-off period: 7 days after 6 consecutive loans
• Finance charges: 15% on first $250; 13% on next $150; 10% on final $150
• Collection fees: One $25 NSF fee per due date
• Criminal action: Prohibited

While there is no stated annual percentage rate (APR) limit in Indiana, it’s possible to extrapolate the APR based on the finance charges. For example, a $100 loan with a two-week repayment period would cost $15. That translates to an approximately 391% APR.

READ MORE: Guide to debt relief in Indiana

Indiana payday loan laws: How they stack up

Payday loans are still a controversial topic in America. The fight to eradicate them is progressing, but not as quickly as one might hope. Currently, only 16 of America’s 50 states have prohibited the practice, while the other 34 have minor (or nonexistent) restrictions.

Indiana is one of the 34 states where payday lending is still legal. There are regulations in place, but they don’t do much to protect consumers. For example: 

• There are rate caps, but total APRs can still end up in the mid triple digits.
• Rollovers are illegal, but lenders can give six consecutive payday loans to a borrower before there’s a cool-off period (which is still only seven days).
• Principal balances are limited but can still be as much as $550, which is almost impossible to pay back at payday loan rates.

Indiana is average among the 34 states where payday loans are legal. Payday lenders can’t get away with all the things they get away with in a state like Texas (which has virtually no limitations), but they can still function largely unimpeded.

The Indiana payday loan laws are pretty straightforward and easy to understand. They give payday lenders in the state a clear set of guidelines to follow, and borrowers will probably find that most lenders are happy with the ruleset. Feel free to take a look at the original legislation to get a better understanding of the letter of the law.

READ MORE: How to get out of payday loan debt

Maximum loan amount in Indiana

Payday lenders in Indiana can’t offer loans that exceed the lesser of $550 or 20% of the borrower’s gross monthly income. For example, someone making $2,000 a month can only qualify for a payday loan of $400. Lenders will typically offer loans in increments of $5 or $10.

Both the $550 and 20% gross income limit also apply to a borrower’s total debt amount. That means that a second lender can’t give a payday loan to a borrower if the first loan is already $550 or 20% of their gross income. If there is some room left after the first loan, a borrower can take a second loan out for the remaining balance but never a third (even if there’s still room left). In addition to the principal and two loan limits, borrowers can only have a single payday loan out from any given lender at a time.

READ MORE: Payday loan consolidation and relief that works

Rates, fees, and other charge limits in Indiana

Indiana’s interest rate limits are incremental. The first $250 of a payday loan can have interest rates up to 15%, the next $150 only 13%, and the final $150 just 10%. Here’s an example of how to calculate the cost of a $500 payday loan:

• 15% of $250 equals $37.50
• 13% of $150 equals $19.50
• 10% of $100 equals $10.00

The total cost of the $500 payday loan would therefore be $67.00. With the typical two-week repayment term, that translates to an APR of approximately 349.36%.

The only other charge that payday lenders can collect is a single NSF fee of $25 per missed payment. That means they can’t try to debit a borrower’s bank account four times and charge them each time it doesn’t go through. Origination fees and collection charges are both illegal.

Repayment terms for payday loans in Indiana

Payday loans don’t have a maximum repayment term in Indiana, but there is a minimum of two weeks. In practice, most lenders offer repayment terms that range from two to four weeks. Any longer than that and lenders will likely classify them as installment loans.

How many payday loans can you have in Indiana?

Indiana laws state that you can have up to two payday loans at once, but they must be from different lenders. This is relatively standard. Many payday lenders won’t issue a second payday loan until the original loan has been repaid. Payday lenders don’t report loans to the three major credit bureaus, but they have a reporting system of their own. So, if you already have the maximum number of outstanding payday loans — or have defaulted on a previous payday loan — the new lender will typically be aware. If you already have two loans, out-of-state lenders and tribal payday loan lenders may still be willing to loan you money, but this is never a good idea.

READ MORE: Can you have multiple payday loans?

Are tribal loans legal in Indiana?

Native American tribes are sovereign nations in the United States. That means they’re generally immune to state regulations, and it’s hard to sue them for breaching the laws of the states where they reside, though they usually follow applicable federal laws.

Tribal lenders are a type of short-term loan provider that partners with Native tribes to try and share in their tribal immunity. They use that as an excuse to sidestep the regulations meant to protect consumers, such as the rate restrictions on payday loans. This means that many charge interest rates in excess of 700% APR.

Tribal lenders are technically legal in Indiana. There are no prohibitions on offering lending services out of a Native American reservation.

Unfortunately, tribal lenders are pervasive. It’s even harder to eliminate them than traditional payday lenders since it takes a much more drawn-out legal process for authorities to impose sanctions on them.

READ MORE: Is my payday lender licensed?

Consumer information

The entity responsible for enforcing the Indiana payday loan laws is the state’s Department of Financial Institutions. The Department has been around since 1933, and in the years since, has monitored commercial and private banks, trust companies, credit unions, and more.

They have five separate divisions, including the Division of Banks and Trust Companies, Division of Consumer Credit, Division of Credit Unions, Division of Administration, and the Legal Division. The Consumer Credit Division is responsible for monitoring small loan (or payday) lenders.

Where to make a complaint

The Indiana Department of Financial Institutions is also the best place to register a complaint about illegal payday lending activities within the state. Here’s the contact information: 

• Regulator: Indiana Department of Financial Institutions
• Address: 30 South Meridian Street, Suite 300, Indianapolis, Indiana 46204
• Phone: 800-382-4880 or 317-232-3955
• Fax: 317-232-7655
• Email: [email protected]
• Link to website: https://www.in.gov/dfi/files/Complaint%20Form%202016-10.pdf

Consumers can also submit a complaint to the Consumer Federal Protection Bureau (CFPB). They are the federal government’s organization dedicated to helping consumers with financial issues, including payday lenders.

Number of Indiana consumer complaints by issue

The following statistics are from the CFPB Consumer Complaint Database.

The most complained about payday lender in Indiana: Big Picture Loans, LLC

Payday loans are legal in Indiana, and the restrictions on them aren’t very confining. Lenders can still charge APRs well into the triple digits, but payday lenders are naturally greedy. Many of them would prefer to completely ignore the rules, even though the Indiana payday loan laws are minimal.

To get around the issue of state laws, payday lenders came up with a new strategy. They partner with Native American tribes to insulate themselves. As sovereign nations, Native American tribes and their business entities have “tribal immunity.” In simple terms, that means that it’s almost impossible to sue them successfully.

Payday lenders can use the tribal immunity excuse to ignore all kinds of laws put in place to protect consumers, including those that limit interest rates. Because of their ability and tendency to flaunt the rules, these tribal lenders are even more dangerous than the typical payday lender. The fact that a tribal lender, Big Picture Loans, is the most complained about lender in a state full of payday lenders is proof of this.

Big Picture Loans is an extension of Tribal Economic Development Holdings, LLC, which belongs to the Lac Vieux Desert Band of Lake Superior Chippewa Indians. That connection allows them to charge rates even higher than the (already-high) Indiana state limits.

Here’s what their terms typically look like:

• Principal balances of $400 to $3,500
• Annual Percentage Rates (APRs) of 35% to 699% (the minimum rate for new customer rates is 350%)
• Repayment terms of 4 to 18 months

Big Picture Loans calls their products installment loans because they have higher principal balances and longer repayment terms than traditional payday loans. Note that they’re also significantly more expensive than what’s legal in Indiana. It should probably go without saying but stay away from these installment loans.

Most common complaints about Big Picture Loans, LLC

The most common complaint that consumers have about Big Picture Loans is that they charge unexpectedly high fees or interest. In a distant tie for second place are problems with the payoff process and the receipt of loans without applying for them.

The overwhelming majority of complaints are about the cost of the loans, though. That probably means two things: Borrowers don’t read or understand the fine print, and Big Picture Loans has a bad habit of hiding things there.

It’s unlikely that Big Picture Loans is entirely to blame for their borrowers’ surprise at their loan rates since they probably provide all the details in their loan agreements. People are responsible for their financial well-being, and they shouldn’t sign documents they don’t understand.

However, that doesn’t exonerate Big Picture Loans from all guilt. They still offer a product that’s harmful to the people who use it, and they do the bare minimum necessary to inform people of the danger. Like tobacco sellers who have a tiny disclaimer on the box that states the product is toxic, they hide their rates in small print and present it in the least threatening way.

READ MORE: How to get out of high-interest tribal loans

Top 10 most complained about payday lenders

Big Picture Loans isn’t the only lender in Indiana that’s causing problems for people. Above is a list of the top ten offenders in the state and the most common complaints people have had about them going as far back as 2013. Unsurprisingly, unexpectedly high fees and interest are the most common issue with most of them, which just goes to show how dangerous the entire industry is.

Payday loan statistics in Indiana

• Indiana ranks as the 21st state for the most overall payday loan complaints
• Indiana ranks as the 23rd state for the most payday loans per capita
• There have been 18,281 payday loan-related complaints made to the CFPB since 2013―322 of these complaints originated from Indiana
• The estimated total population in Indiana is 6,732,219 people
• There are 4.7830 payday loan complaints per 100,000 people in Indiana
• The most popular reason for submitting a payday loan complaint is “Charged fees or interest you didn’t expect.”

READ MORE: Payday loan debt statistics

History of Indiana payday loan laws

The Indiana payday loan laws have gone through a few changes over the decades. They’ve never been particularly strict, though, and payday lenders have always either found loopholes or been mostly unaffected in the first place.

• 1973: The Consumer Credit Protection Act passes and limits APRs to 72%. Payday lenders are exempt from the law. They charge much higher rates and the industry continues to grow.
• 1993: The Indiana Department of Financial Institutions is born. It takes over the regulation of payday lenders but can’t do much to rein them in.
• 2002: The current Indiana payday loan laws come into effect. Payday lending settles into a status quo with lenders (mostly) happy to play by the rules that favor them.
• 2013: Tribal loans have been gaining steam for a few years. They supplant payday loans as the most dangerous form of credit in the market.

In recent years, there have been multiple attempts from both sides of the payday loan war to advance their causes. 2018 saw two bills almost pass into law that would have raised the allow principal balances, extended repayment terms, and increased the allowable interest rates. In 2019, there was also a bill that tried to accomplish the opposite by limiting rates to 36% (the standard cap for most states that prohibit payday loans).

Indiana is one of those battleground states where the future of payday lending is very much up in the air. All of the bills above failed eventually but came close to making it into law. The next few years may see a drastic change in the course of the industry.

Flashback: An Indiana payday loan story

The overarching history of the Indiana payday loan laws is interesting, but it doesn’t do much to convey the true cruelty of the industry. The best way to demonstrate the reality of the situation is to hone in on a specific story. To that end, let’s take a look at one from Indiana back in 2000.

The payday lending industry was just picking up steam in the Hoosier State. Legislators and regulators didn’t know exactly what to expect. There were many advocates of the idea that the loans were a necessary evil that would give people who struggled with creditworthiness some much-needed financial relief.

In an attempt to document the truth of payday loans, Mark Tarpey, the supervisor at the consumer credit division of Indiana’s Department of Financial Institutions at the time, decided to run a study. They had received a lot of complaints about payday lenders already and hoped to gather some statistics about the industry.

The study covered 5,350 different accounts and 54,000 loans in the year 2000. To no one’s surprise (at least no one reading this), the results were horrifying. They found that a whopping 75% of all payday loans were rolled over into a new loan. Perhaps even worse, 90% of borrowers had at least one rollover on their record.

If ever there were proof that payday loans keep people in a cycle of debt, that would have to be it. A payday loan rollover is when a borrower can’t pay back their loan and pays a fee to push back the due date. The problem is that these fees end up ballooning the effective interest rate on the loan to even more ridiculous heights. Thankfully, in 2021, the Indiana payday loan laws forbid even a single rollover.

The bottom line: Should you take out a payday loan in Indiana?

The Indiana payday loan laws don’t do much to limit the industry. Payday lenders can still charge interest rates of up to 391% APR without breaking the law, and those who are willing to go tribal will routinely charge even more than that.

Taking out a payday loan is almost always a mistake, especially in a state like Indiana. They’re just too expensive to be useful, especially given their typical two-week turnaround time. If someone can’t afford a $100 expense at the beginning of the month, it’s very unlikely that they’ll be able to afford a $115 expense just two weeks later.

Don’t take a payday loan out in Indiana if you can help it, or any other state for that matter. You’re usually going to be much better off with a paycheck advance app, a loan from a credit union, or a secured loan from a traditional lender. They’re going to be much more affordable and almost as accessible, even with bad credit. If you can avoid debt altogether by making more money or spending less, that’s even better.If you’re already stuck in the payday loan trap and need someone to guide you through getting out, DebtHammer can help. We specialize in extricating people from the cycle of payday loans and getting them to debt freedom. Contact us today to get started with a free quote!