Once again, an effort is being made in the Alabama legislature to reform the predatory lending practices of so-called “payday loans” and “title loans.” These lenders prey on the poor, offering easy money on the front end, but tied to the burden of sky-high interest rates and confusing terms for paying off principal versus interest. Borrowers often find their loans rolling over multiple times until they are hopelessly drowning in debt. These predatory lenders have one goal and that’s to get folks in debt and keep them in debt.
In Alabama, payday and car title lenders can charge interest at an annual percentage rate (APR) as high as 456 percent. Title loan companies can charge up to 300 percent APR. Shay Farley, legal director for Alabama Appleseed, which has been strongly advocating for reform in these industries, described these interest rates as “usury and immoral.” I agree wholeheartedly. It’s shameful for the politically powerful predatory lenders to take advantage of folks like they are now allowed to do. It’s even more shameful for political leaders to help them do it!
Payday lending reform has been on the agenda at Alabama’s State House for the last several years. But, astoundingly, the legislation never seems to get any traction. Once again this year, two bills were introduced to address predatory lending. Those are discussed below:
Patricia Todd (D-Birmingham) sponsored one of two bills in the House that would restrict payday lending to 100 percent interest per year, and would limit individuals to having five payday loans per year. In addition, the bill would mandate a database that lenders could use to track who had taken out payday loans, so one person could not exceed the allowable number of payday loans by going from lender to lender. Currently, there is no reliable system in place to share information between payday lenders.
Rep. Rod Scott (D- Fairfield) sponsored a bill to restrict car title loans to 36 percent interest. It also would establish a central database to enforce existing limits on the number of loans one person can take out. Additionally, this bill would cap APR at 24 percent on loans of $2,000 and 18 percent APR on loans of $3,000.
Rep. Todd told AL.com that “In order to get people out of poverty we need to regulate these lending practices.” He pointed out that “the states do it for insurance and for banking,” and he added “Why not for this industry?”
We wrote in another section about an editorial published on Feb. 12 in the Montgomery Advertiser. Rep. Scott had this to say in a statement given to the Advertiser:
This week, my colleagues on the Financial Services Committee in the Alabama House of Representatives will have an opportunity to make a real difference for the state. This morning, they will have the opportunity to move forward important legislation that will protect some of the state’s most vulnerable citizens – working single mothers, veterans, members of the military, senior citizens, etc. – and grow Alabama’s economy through common sense reforms to the predatory title lending industry.
Unfortunately, as of press time for this issue, Rep. Todd’s bill to cap interest rates that payday lenders can charge appears to be headed for a political graveyard. The bill was sent to a House subcommittee, with little, if any, chance of making it out for a vote of the full House. But Rep. Scott’s title loan bill – HB 406 – was carried over after the House Financial Services Committee voted to send Rep. Todd’s payday bill to subcommittee.
Interestingly, Sen. Scott Beason, who is one of the most conservative members in the legislature, agreed to sponsor both bills in the Senate. Hopefully, he will have more success in the upper chamber. Both Rep. Farley and Rep. Scott told the Advertiser they feel the title loan industry is more willing to discuss regulation than is the payday loan industry. Frankly, I have serious doubts that the powerful lobbyists for the industry will agree to any reform. But these two reform-minded legislators are hopeful the title loan bill will succeed, providing at least partial relief to consumers. Supporters of the legislation include Alabama Appleseed, Alabama Citizens’ Action Program, Alabama Federation of Republican Women, Alabama Arise and AARP of Alabama.
Nationwide, payday lenders target about 12 million customers per year, generating approximately $3.4 billion in annual revenue. Recently the Consumer Financial Protection Bureau has made the industry one of its top targets, working to implement new rules and cracking down on what it perceives as abusive conduct. Based on recent polls, an overwhelming majority of Alabama citizens are for the reform efforts. However, the predatory lending industry has invested campaign funds wisely and that may spell doom for any reform. With such strong support from individual folks and many groups around the state asking for reform, my question is: why don’t the legislators support reform? What do you think?
Sources: AL.com, Montgomery Advertiser, and ThinkProgress.org
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