It appears that the sweeping oversight reform of the country’s financial industry is missing a key component that would have protected low-income consumers. At least that’s the opinion of Steven Stetson, a policy analyst for Alabama Arise, an advocacy organization for the poor, based in Montgomery. As we all know, President Obama has signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. It’s the biggest overhaul of the financial industry since the Great Depression and one that was badly needed. If there are any problems with the Act, Congress has a duty to correct them without undue delay.
Alabama Arise is correct. At least one major change is needed. Missing from the law are stricter interest rate limits and caps on the number of payday loans consumers are allowed each year. Mr. Stetson had this to say about the problem:
As the economy limps along, people resort to payday loans to pay their bills when they run short of money and don’t think about the interest they pay over the long term. We see the loans as threats to family stability that are enriching big businesses. These are big contributors but they present themselves as small mom and pop operations that loan money to a single mother who needs to fix her car to get to work.
There was a great deal of intense lobbying by the special interest groups as the reform package made its way through the legislative process. Alabama Arise believes that folks who want payday loan reform need to make a stronger case with lawmakers and also do a better job of educating consumers. While there may be a place for quick loans to bail consumers out of a tight spot for a short time, the problems come when consumers can’t pay back the loans when due and have to roll them over. A new borrowing cycle with more interest added on the previous one can result in interest rates as high as 400%, according to Alabama Arise. The resulting vicious cycle is why reform advocates push for more regulation. Clearly, the payday lending industry has done a better job of making its case with lawmakers.
Consumer advocate Jean Ann Fox, testifying in hearings before Congress on the issue for the Consumer Federation of America, said the average payday loan rolls over eight to 12 times. She says that averaged annually, the interest rate is close to 400%. The effectiveness of the payday loan industry lobby means there is more work to do, not only in Washington, but also in Montgomery. Bills to tighten payday lending also have run into roadblocks in the Alabama Legislature. Our state should study reforms made in some nearby states, including Arkansas, Georgia and North Carolina. Alabama’s leaders need to take a strong stand and do whatever is necessary to regulate the payday lending industry in our state. We can’t expect to get much done in Washington, it appears.
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.