First of all, this is a Small Court claim at best. What your "tenant" did was get a Lawyer to send you a scary letter for maybe $30-$50 out of pocket, or has a relative who works as a paralegal at a law office, who got a freebie favor. I would throw the letter away, Seriously, exactly what I would do.
Secondly, IC 34-24-3-1 is simply the law that allows those in Indiana to sue for damages to a party.
It goes on to define damamges do to Criminal confinement, damages when standing up to a gang either by actions of the gang or damages from refusing to join, Interference with legal custody of a minor child, Cemetary mischief, Insurance fraud, creating credit cards, owning a machine that copys credit card info, Cable stealing, welfare fraud, falsely representing yourself as a Woman owned business, Burglary, trespassing, Stealing, not returning library books, changing serial numbers on an object, Tree and timber spiking, Forging Title insurance, changing pill bottle labels,and so on.
In fact, the only bit of this that applies to residential real estate deals with contractor fraud.
I would challange anyone to find reference to "Holding Fees" in Indiana Law. There are no laws restricting the amount of the deposit. Indiana Landlord Tenant in Indiana is about nothing.
We didn't need to give notice of any kind to enter a rental unit at any time day or night until July of 2007, and even now it's not like we need to give 24 hours or anything. In 2006 you could walk into your unit at 3:00 am just to make sure all the overhead lights work.
Where I am getting here is that there really isn't law for Landlord Tenant issues in Indiana.
Now, I will say that some local laws are in place, but that is going to depend on where you are. If you are up in Lake county, Marion County, Bloomington, Across the River from Lousiville, or some other area that Obama carried, you should do some research into local court rulings by liberal judges creating law.
Anywhere else in the state, throw the letter away and forget about it.
In the future, just write that it is non-refundable on the reciept you give them. If they can't produce the reciept you never took the fee, if they do produce the receipt, it clearly says non-refundable.
I wouldn't worry about it. A lawyer letter is nothing, I would ignore it.
--72.86.xx.xxx