The payday lenders operating in the U.S. have been allowed to take unfair advantage of persons who borrow money from them. While a relatively few states do a fairly good job of regulating this industry, really none of them do an adequate job. In fact, it’s most unfortunate that most states, including Alabama, do a very poor job of regulation. I will discuss the situation in Alabama, which is one of the worst states when it comes to regulation of predatory lenders, in some detail. The Alabama Legislature needs to correct that situation. The Montgomery Advertiser, in a recent editorial, made a strong case for better regulation in my state. Because of the importance of the issue, I am setting the editorial out below in its entirety.
Payday Industry Begs Review
Usury, says Webster’s, is “the lending of money at an excessive rate of interest.” The Random House Dictionary of the English Language defines it as “the lending or practice of lending money at an exorbitant interest.” That sounds a lot like what’s going on in here in Alabama with payday and title loan companies.
It’s hard to argue that interest rates that hit 456 percent for payday loans and 300 percent for title loans aren’t excessive or exorbitant, yet these lenders make straight-faced claims that their business requires such staggering annual percentage rates, that the risky nature of these loans and the circumstances of their customers just won’t let them operate any other way. They argue that they cannot make money making loans at 36 percent interest, the cap called for in two bills currently before the Legislature.
The undeniable reality is that these loans are a potential financial death trap, sucking customers into a virtually inescapable spiral of debt. Borrowers often find themselves taking out new loans to service existing ones, creating an all but impossible situation to manage. Take the case of Pamela Tarver, a Montgomery resident who spoke at a rally in support of the loan cap bills. She originally borrowed $700. In less than four years, she has paid more than $14,000 in interest. Her interest payments reached $380 a month.
No wonder these lenders like things the way they are. No wonder they have been quick to mount massive lobbying efforts in the Legislature to preserve the lucrative status quo. The industry has even opposed efforts to create a central database of borrowers, so that the current law, which is supposed to prohibit borrowers with existing loans from taking out new ones, could be followed. Now, with several different databases in use, such a would-be borrower may not appear in the database a particular lender works from, thus allowing the lender to make a loan it really shouldn’t be allowed to make under the law.
To its credit, the state Banking Department announced plans to create a central database — and was promptly sued by industry representatives seeking to stop it. The lawsuit is pending. The cap bills enjoy remarkably diverse support, from organizations such as Alabama Arise, which advocates for the poor, to the Alabama Federation of Republican Women. As Democratic Rep. Patricia Todd, sponsor of the payday loan cap legislation and perhaps the most liberal member of the Legislature, observed, “When the Republican women and I agree on a bill, you should take note: There must be something good about it.” Indeed there is; quite a lot of good, in fact. Alabama does not have to allow people to be so brazenly taken advantage of, and should not continue to do so.
If you live in Alabama, and agree with the Advertiser, contact your legislators and ask them to support Rep. Todd in her efforts. For those who aren’t Alabama residents, they should consider contacting legislators in their states. The only way to win this battle is for folks who vote in elections to get involved in the fight. The lobbyists for the industry will once again prevail if people fail to get actively involved in the battle. More will be written on the legislative prospects in Alabama in the Legislative Section of this issue.
Source: Montgomery Advertiser
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