Despite a broad base of support, three bills before the Alabama State Legislature seeking to reform payday and title loan businesses died painful deaths. The proponents of the legislation were unable to make it past a stronger coalition of lobbyists on the side of the lenders. That was a real shame, and it was bad news for the poorest citizens in Alabama on whom these loans sharks prey.
Two bills were introduced in the House. The payday loan bill, HR320, was sponsored by Birmingham Representative Patricia Todd and Senator Marc Keahey, who is from Grove Hill. The title loan bill, HR462, was sponsored by Jefferson County Representative Roderick Scott and Representative Mike Ball, who is from Madison County. The bills sought to place a cap of 36 percent on interest rates for short-term payday and title loans. Currently, interest rates can reach as high as 456 percent on payday loans and 300 percent on title loans. Those are not “misprints,” but the actual rates folks are paying currently.
The legislation would also have called for a central database to be created to track the number of payday loans a person has taken out. Often, people who take out a payday loan do so to cover necessary daily expenses – things like paying rent, buying groceries or paying a medical bill. When it comes time to repay the loan, they take out another payday loan, and so on, until they are hopelessly mired in debt with nearly impossible interest rates.
There are more than 1,000 payday lenders in the state. Without a central database, one payday lender has no way of knowing if someone already owes one or more of the loans when they apply for another. Research by Pew Charitable Trusts found that an average payday and title loan customer takes out an average of eight loans a year.
The bills had support from a wide variety of groups including Alabama Appleseed, Alabama Federation of Republican Women, Alabama Arise and the Alabama Citizens’ Action Program. Even though Gov. Robert Bentley supported the reform efforts, the legislation died a “painful death.” Payday lenders, through their powerful army of lobbyists, argued the high interest rates they charge are necessary for securing high-risk loans. They say that loans are available to folks who wouldn’t be able to get them from a traditional lender. They claim the reform measures would put them out of business, which is difficult to believe.
The Southern Poverty Law Center recently produced a booklet outlining the toll payday and title lenders take on a community. In that publication, Easy Money, Impossible Debt: How Predatory Lending Traps Alabama’s Poor, the Center points out that in states that have cracked down on this type of predatory lending, when predatory lenders leave the market, responsible lending grows up in their place.
As the House bills faltered, Senate President Pro Tem Del Marsh sponsored and introduced a compromise bill that would cut the interest rates charged by payday loan companies, but not as harshly. The legislation would have reduced the maximum APR to 326 percent. It also included limiting the number of payday loans a person can take out, and favored creating a central database of loans. The compromise bill did not address title loan reform.
The legislation was developed by Sen. Marsh in conjunction with State Banking Superintendent John Harrison, in hopes that any step forward in payday loan reform, however small, would still be forward progress. This bill made it out of committee, but never came to a vote in the Senate. John Harrison worked extremely hard and tried his dead-level best to get a good bill passed. But to put it bluntly, the pay day lenders and their army of lobbyists ruled the day. It was a sad day for Alabama!
Sources: The Montgomery Advertiser and WSFA TV News
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